AMID the third wave of COVID-19 infections which has proven to be far more disruptive to the Malaysian economic recovery than it has previously expected, Fitch Solutions Country Risk & Industry Research has revised the country’s 2021 real gross domestic product (GDP) growth forecast downwards to 0%, from 4.9% previously.
This follows the release of Malaysia’s 2Q 2021 real GDP growth figures of -2.0% quarter-on-quarter (qoq) and 16.1% year-on-year (yoy) which fell far below the previous expectations of the research house.
“In particular, the daily caseloads have not improved despite lockdown measures imposed nationwide and continues to set new records throughout the first half of August,” Fitch Solutions pointed out in its latest commentary on the Malaysian economy.
“Meanwhile, while vaccinations are accelerating, it is unlikely to see the country achieve herd immunity before year-end, quashing any prospects of a late economic surge in 2021.”
The research house further expects all economic segments – from an expenditure perspective except government consumption – to likely remain stagnant or even contract slightly from 2020 levels.
“We note further downside risks to our forecast given the high level of political risk since the beginning of 2H 2021 and the risk that the outbreak could still worsen over the coming months which could further affect the economy’s performance,” noted Fitch Solutions.
Although real GDP expanded by 16.1% yoy in 2Q 2021 which appears strong, the research house is of the view that the true picture of the economy is told by the -2% qoq growth rate, the result of the increasing stringent lockdowns that were implemented in 2Q 2021 which culminated in the nationwide total lockdown.
Although the Government can render support by boosting its consumption as evident by the research house having revised its forecast for government consumption growth to 7% from 4.5% previously, this is mostly due to increased stimulus implemented by the Government, according to Fitch Solutions.
Since the beginning of 2021, the Government has unveiled stimulus packages valued at RM200 bil or 15% of GDP.
“The revision is to account for the fact the stimulus packages are also made up of loan moratoriums undertaken by banks and allowing workers to withdraw pension savings which are not actual spending by the Government,” suggested the research house.
“While we do not rule out further spending over 2H 2021, we do not expect this to be material, especially given that Malaysia’s total government debt has already exceeded the Government’s self-imposed debt limit of 60% of GDP, coming in at 64.6% of GDP as of end-1Q 2021.” – Aug 16, 2021
