PETALING JAYA: Bank Negara Malaysia’s (BNM) revised growth projection of 3-4% for the full year of 2021, against an earlier estimate of 6-7.5%, shows that the Covid-19 pandemic threat continues to loom large over the country’s economy.
Sunway University Business School professor of economics Dr Yeah Kim Leng sees the sharp downward revision by the central bank as a logical move given the continuing severity of the pandemic situation and prolonged restrictions on social and economic activities.
“These headwinds to a full-fledged recovery are being compounded by heightened political uncertainties which are having a dampening effect on consumer and business confidence,” he told SunBiz.
“The subdued recovery expected this year could worsen due to the convergence of these destabilising forces but hopes of normalisation and stronger growth next year are in line with expectations of the strengthening global economy and the accompanying favourable prospects for Malaysia’s exports.”
In regard to the current political turmoil affecting Malaysia due to Prime Minister Tan Sri Muhyiddin Yassin’s lack of parliamentary support, Yeah remarked that political stability is necessary but there are not sufficient conditions for the country to realise better post-pandemic rebuilding opportunities and higher growth trajectory.
With a 16.1% growth reported in the second quarter, he sees the strong contribution from the external sector as a positive note. However, the lack of improvement in domestic consumption and investment has failed to lift the quarter’s gross domestic product (GDP) figure above the pre-pandemic levels despite the emergence from recession.
OCBC Treasury Research said the slashing of the growth outlook may be a prelude to a potential cut in the policy rate when BNM meets next on Sept 9.
“Even as it pointed out a gradual recovery to come in Q4 and growth acceleration into next year, the bodily blows that the economy is suffering through now, as reflected in the new downbeat forecast, necessitates a response in the form of easing.”
Overall, even with the rebound in second-quarter GDP, OCBC’s full-year GDP growth forecast now stands at 3.6% year-on-year, compared with 4.0% before.
Despite the revision in projection by the central bank, MIDF Research opted to stick with its growth of forecast of 4.6% but with downside risk from the extended lockdown measures and possibility of a worsening Covid-19 situation, mainly due to the spread of the highly transmissible Delta variant.
It noted that the Q2’21 performance has pushed the first-half growth figure up to 7.8% year-on-year, higher than its estimate of 7.1%.
“Although this could push GDP growth for the year higher, but we view the prolonged lockdown increases the risk for Q3’21 growth to return back to negative growth as tighter restrictions mainly constrain domestic consumption and business activities going deeper into Q3’21.”
Nonetheless, MIDF is optimistic over the encouraging progress in the National Vaccination Programme which will help to relieve pressure on the national healthcare system and increase the likelihood of achieving herd immunity by the fourth quarter of this year.
It pointed out that many states have already transitioned into the next phases of the National Recovery Plan, and the gradual relaxation of restrictions on businesses and fully vaccinated individuals will result in improving economic activities in the latter part of the year.
The research house believes the easing and potential increase in pent-up demand will provide support for a continuing economic recovery from the fourth quarter and into 2022. “While we expect external demand will continue to support growth, the recent spike in Covid-19 cases in other parts of the world could influence trade outlook at least in the near term.”