BANK Negara has revised downwards Malaysia’s 2021 gross domestic product (GDP) growth forecast to between 3% and 4%, as the prolonged nationwide lockdown and lingering uncertainties from the Covid-19 pandemic continue to weigh heavily on the economy.

       Despite year-on-year GDP growth of 16.1% in the second quarter of this year, which was above forecasts, Bank Negara governor Datuk Nor Shamsiah Mohd Yunus says economic performance was adversely impacted following the implementation of the full movement control order (FMCO) in June.

       “While the economy continued on a recovery path in April, domestic-oriented activity was affected by tighter containment measures in the later part of the second quarter of 2021,” she said during a virtual media conference on Malaysia’s second quarter GDP performance yesterday.

       Nor Shamsiah says that there were “some improvements” in July, but emphasised that it was still below pre-FMCO levels.

       “Overall, the Malaysian economy is expected to grow between 3% and 4% in 2021. The downward revision is reflected from the implementation of the FMCO nationwide,” she says.

       AmBank Research had projected GDP for the second quarter of 2021 to hover between 11% and 13%, while RHB Investment Bank anticipated a 15% growth.

       The central bank had initially forecast Malaysia’s GDP to grow between 6% and 7.5% this year.

       Nor Shamsiah says the near-term outlook will be dependent on Covid-19-related risk factors.

       “The FMCO is expected to have a cumulative effect of five percentage points on this year’s GDP growth, or an average of RM400mil to RM500mil in daily real output losses.

       “With 7.1% growth recorded in the first half of 2021 and looking at the Covid-19-related developments from June, we expect a more moderate growth in the second half of the year, especially in the third quarter.”

       Nor Shamsiah says growth prospects in the third quarter will still remain muted due to the continuation of the FMCO, adding that the situation should improve by the fourth quarter of this year.

       At the core of it, she says recovery will be heavily dependent on how quickly the country’s population can be inoculated.

       “A faster vaccination rollout will lead to a sooner-than-expected reopening of the economy where all states can transition into phase four by September.

       “With a faster vaccination rate, where a majority of the total population would be fully inoculated by October, it will generate a faster recovery in labour market conditions and consumer confidence, as well as subsequently stronger than expected demand conditions.”

       If this scenario is achieved, Nor Shamsiah says Malaysia’s 2021 GDP growth could exceed 4%.

       “A slower recovery scenario assumes a delayed reopening of the economy on account of delayed resolutions of the pandemic.

       “This scenario assumes vaccination rates would slow down and the efficacy of existing vaccines is lower to new virus strains. This would necessitate more prolonged containment measures and is expected to weigh on economic activity,” she says.

       Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz says Malaysia’s economy is expected to gradually recover as the National Covid-19 Immunisation Programme is accelerated and the National Recovery Plan thresholds are met for each state.

       “This will facilitate a broader reopening of economic and social activities. So far, six states have moved to phase two and two states including the Labuan Federal Territory, have successfully moved to phase three.

       “Globally, Malaysia is one of the fastest nations in administering vaccines, with more than 500,000 doses administered daily. To date, 70% of Malaysia’s adult population have received their first dose of vaccination,” he says in a statement.

       At the current rate, Tengku Zafrul says it is expected that 80% of the adult population in Klang Valley and 50% of the nation’s adult population will be fully vaccinated by end-August.

       Other factors that will drive Malaysia’s economic recovery include improving external demand from major trading partners, recovery in commodity prices as well as the implementation of infrastructure projects with high multiplier impact.

       “These factors will support Malaysia’s economic fundamentals, which remain resilient even during these difficult times, underpinned by the increasing sophistication, depth and diversity of the Malaysian economy where services and manufacturing sectors account for more than 80% of the economy.

       “The manufacturing sector and exports are expected to benefit from the current thriving global demand for electrical and electronics (E&E) products, hydrocarbons such as crude oil and natural gas, as well as personal protective equipment,” he says.

       Nor Shamsiah meanwhile says the low overnight policy rate (OPR) will also help to ease borrowers’ cashflow burden in light of the challenging environment currently.

       “Our OPR stands at a record low of 1.75% and this will continue to provide stimulus to the economy and lead to the easing of debt service burden of borrowers.

       “This stance is appropriate and accommodative to support a sustainable economic recovery.”

       On a seasonally adjusted quarterly basis, Nor Shamsiah says the GDP is expected to return to peak pandemic levels by the fourth quarter of this year.

       “The gradual recovery will be supported by the expected reopening of the economy, materialisation of pent up demand, ramp up in commodity production and continued investments in large scale infrastructure projects.

       “Looking ahead to 2022, we expect growth to accelerate, supported by the reopening of most economic sectors as well as positive spillovers from continued improvements in external demand.

       Nor Shamsiah says export oriented sectors will see a strong recovery, in line with growing global demand. However, she says consumer and tourism-related sectors are expected to recover at a slower pace.

       Additionally, she says Malaysia’s export performance has been strong this year.

       This has been driven by strong external demand. The faster expansion of exports was broad based across products. Going forward, the rebound in major trade partners’ growth is expected to support Malaysia’s exports.

       Malaysia’s exports to all major markets, namely Asean, China, the United States, the European Union and Japan, recorded double-digit expansion in June.

       The strong exports turbo-boosted Malaysia’s total trade performance, which surpassed RM1 trillion in value in just the first six months of the year.

       According to the International Trade and Industry Ministry (Miti), this was the shortest period to breach the RM1 trillion milestone.

       Data provided by the Statistics Department showed that exports to the five major markets in June totalled RM72.25bil, exceeding imports of RM57.8bil.

       The markets collectively contributed almost 69% to June’s total exports.

       Miti said the country’s total exports in June grew for the 10th consecutive month year-on-year since September 2020, registering a strong growth of 27.2% to RM105.47bil.

       This was the third time exports exceeded the RM100bil-mark.

       Nor Shamsiah says Malaysia stands to benefit from the robust demand for semiconductors to cater for increasing needs for work-from-home equipment, digitalisation of businesses and medical devices.

       “Additionally, non E&E manufactured exports such as petroleum and chemical products will continue to benefit from the strength in global business and consumer demand.

       “Rubber products will also remain supported by higher healthcare and hygiene requirements in both the medical and non medical sectors.”

       She says the strong export performance will continue to support the recovery in the domestic economy, including through job creation and income growth in export oriented sectors.

       Separately, Nor Shamsiah says headline inflation is expected to moderate in the second half of 2021 as the base effect from fuel prices dissipates.

       “Headline inflation recorded a temporary spike to 4.1% in the second quarter of this year, mainly due to the base effect from fuel prices and lapse from the impact of electricity tariff rebates implemented last year.

       “Meanwhile, core inflation remains stable at 0.7% for 2021, while headline inflation is expected to average between 2% and 3% from our earlier forecast of 2.5% and 4%.”

       Nor Shamsiah says the revision takes into account that headline inflation is expected to average close to the lower bound of the previous forecast range.

       “Importantly, the trajectory for headline inflation remains unchanged,” she says.

       Meanwhile, Malaysia’s second quarter GDP performance was supported mainly by the improvement in domestic demand and continued robust exports performance.

       The central bank says in a statement that the strong growth also reflected the low base from the significant decline in activity during the second quarter of 2020.

       The ringgit appreciated by 0.1% against the dollar in the second quarter of 2021.

       This was largely due to the weakening of the dollar in the earlier part of the quarter as a result of declining real US Treasury bond yields which led investors towards higher-yielding assets.

       Net financing to the private sector recorded an annual growth of 4.4% during the quarter.

       “Outstanding loans growth moderated to 3.6% while outstanding corporate bonds growth increased to 6.9%. Outstanding business loans recorded an annual growth of 1.3% amid slower outstanding investment-related loans growth.

       “Nonetheless, outstanding working capital loans growth increased during the quarter. For households, loan demand continued to be forthcoming, particularly for the purchase of residential property,” the statement says.