WITH the extension of lockdown restrictions, Malaysia’s domestic demand recovery for 2021 has encountered a setback.
This is given the Klang Valley region which accounts for about 60% of retail sales is currently under a movement control order (MCO 2.0) which has been re-imposed since Jan 13 and extended till March 4 (for now), according to Fitch Solutions Country Risk & Industry Research.
“Additionally, we cannot rule out any further extensions as daily COVID-19 cases are still significantly high (at time of writing, the seven-day average was 2,757 compared to the 173 average in April 2020, the peak of the first wave) albeit lower than the peak of 4,754 on Feb 4,” projected the research house in its latest commentary on Malaysia.
“These lockdown measures are likely to cause a resurgence in unemployment, and delay any recovery in tourism related sectors,”
The research house is now forecasting the country’s unemployment rate to average 4.5% of the labour force in 2021, up from its 4.2% estimate over 2020 and significantly higher than the 3.3% in a pre-COVID-19 environment in 2019.
In January, Fitch Solutions cautioned that the Malaysian consumer recovery will be slower than that of its global peers.
“The new extension to restrictions, combined with the downward revision to economic growth means the consumer recovery faces even more pressure,” justified the research house.
“The elevated unemployment rate, combined with restrictions on both the movement of consumers and on retail has led our consumer & retail team to revise down our forecast for real household spending over 2021 from 7.2% year-on-year (yoy) to 3.1% yoy.”
This is significantly lower than its pre-January 2021 forecast of 11% yoy growth for 2021.
More broadly, Fitch Solutions has also lowered its projection of Malaysia’s 2021 real gross domestic product (GDP) forecast to 4.9% from its previous yoy growth projection of 10%.
This revision follows the realisation of the downside risks pointed out in its comprehensive update on the growth, fiscal and monetary outlooks for Malaysia.
“Our consumer team will continue to watch the developments in Malaysia, especially regarding any further extensions to lockdown measures (especially in the Klang Valley region) and we do not rule out further downward revisions to our growth forecast over the coming months,” the research house noted.
“We will also be watching the vaccination rollout in the country as both restrictions and consumer sentiment will rely heavily on this plan over the year.
“Any delays or accelerations has the potential to impact our 2021 and 2022 forecasts for consumer spending in Malaysia.” – Feb 26, 2021
