Despite sluggish economy, Malaysia’s GDP to rebound in 1Q 2021

KENANGA Research has revised upward Malaysia’s 1Q 2021 gross domestic product (GDP) growth estimate to 2.1% from -0.4% following a sharper-than-expected exports growth in March (31.0% year-on-year [yoy]) and 1Q 2021 (18.2%; 4Q 2020: 5.1%).

Bank Negara Malaysia is scheduled to announce the country’s 1Q 2021 GDP on May 11.

The revision is based on the strong performance of the manufacturing export sector (22.7%; 4Q 2020: 7.6%), fuelled by the technology upcycle amid strong demand globally for IT-related products and commodities following the economic re-opening.

Very broadly, the research house expects the economy to track a firmer recovery path from 2Q 2021 onwards due to the base effect and underpinned by sizeable fiscal measures and gradual reopening of the economy.

“Although we are concerned about the spread of new strains of COVID-19 and alarming rise in the number of infections locally and abroad, the base effect and strong exports could aid 2Q 2021 GDP growth to accelerate to 14.3% or even higher depending on the impact of the stimulus spending and a smooth vaccine roll-out,” opined its head of economic research Wan Suhaimie Wan Mohd Saidie in a 1Q 2021 GDP preview.

“Furthermore, the latest (and may not be the last) fiscal stimulus via PEMERKASA would support growth recovery and prevent further setbacks.”

According to Kenanga Research, this will be further bolstered by the wider progress of COVID-19 vaccination, the continuation of mega infrastructure projects and an improved consumer sentiment.

“Hence, barring an unforeseen risk of a major uncontrollable widespread of COVID-19 pandemic, we maintain our 2021 GDP growth projection of a strong rebound of 6.5% (BNM: 6.0% to 7.5%) from -5.6% in 2020,” added the research house.

In a related development, AmBank Research expressed concern that while manufacturing activities are expected to remain healthy going forward, the upside movement will depend much on the number of COVID-19 cases easing of restrictive measures and vaccine roll-out.

“Besides, further development in supply-side constraints will weigh on manufacturing activities,” its chief economist/head of research Dr Anthony Dass pointed out in a commentary on Malaysia posting an all-time high PMI of 53.9 in April.

“The accumulation of backlogs at a rate not seen for four years showed firms are facing difficulties to produce enough goods to meet demand. The risk of backlogged work piling up going forward is high.”

Nevertheless, AmBank Research expects the economy to be on track to report a strong growth in April based on the latest manufacturing PMI data.

“If manufacturing PMI remains above the ‘50’ threshold for the remaining months of 2Q 2021, supported by healthy exports, positive retail activities and a low base, 2Q GDP is expected to report a strong double-digit growth,” projected the research house. – May 4, 2021

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