KUALA LUMPUR, 14 JULY: Malaysian Rating Corp Bhd (MARC) has slashed its previous prediction of 5.1 percent GDP growth for 2021 to 3.9 percent, citing the country’s implementation of back-to-back movement restrictions as the reason. According to MARC economists Firdaos Rosli, Lee Si Xin, and Lyana Zainal Abidin, the economy will perform 2 percent below its pre-pandemic level this year. Malaysia’s GDP growth was expected to be 6.4 percent in January by MARC, but it was lowered to 5.1 percent in May.
According to experts, the longer-than-expected nationwide lockdown will exacerbate the recovery’s difficulties, with more serious economic scars resulting from greater insolvencies and retrenchments.
“These, together with looming political uncertainty, will exacerbate the deterioration of business and consumer mood, weakening discretionary expenditure and investment,” they added.
According to them, Malaysia’s future growth prospects are totally contingent on how restrictive mobility constraints would be.
“We believe the economy will only rebound to pre-pandemic GDP levels in late 2022, or even later if mobility restrictions remain in place,” they stated.
While the government hopes to reduce the number of daily positive Covid-19 cases to under 500 and achieve a 60% inoculation rate before allowing the economy to fully reopen in November or December, they believe the goal is too lofty, given vaccine supply constraints and a lack of explanation as to how the number of positive cases can be reduced in the future.
Only 11.3 percent of the population was fully immunized at the time of their note, putting them well behind the objective, they added. Based on the most recent available statistics as of July 13, the latest inoculation rate was 11.76 percent.
Meanwhile, they claim that the stringent lockdown measures, which include the suspension of non-essential services, will have a negative impact on private spending, which is the key driver of economic growth.
They also said that the bleak labor market has had a significant influence on consumer confidence. “Notably, the unemployment rate may rise in the next months and remain elevated for the remainder of the year,” they said.
Low-income households’ spending will likely remain below pre-pandemic levels for a longer period, especially after stimulus support expires, they noted.
‘Continued political uncertainty has shattered FDI confidence,’ says the report.
Since MCO 1.0, businesses have been dealing with chronic supply chain disruptions and weakening domestic demand, and the unfavorable business operating environment will force businesses to postpone or cancel investment choices.
“It also doesn’t help that certain high-quality foreign direct investments (FDI) have bypassed Malaysia in favor of our regional neighbors. In addition to the pandemic, ongoing political uncertainty have shattered FDI confidence “they stated
They predicted that the fiscal deficit would likely exceed the government’s existing objective of 6% of GDP in 2021, owing to large tax deficits and escalating spending to finance different stimulus measures.
“Instead, we estimate that the fiscal deficit will be 6.3 percent of GDP. We anticipate that additional fiscal support, albeit in reduced amounts due to the increasingly constricted fiscal space, could be forthcoming until the recovery path is apparent “they stated
There is a greater chance of a rating downgrade.
They believe there is a greater chance of a rating downgrading by another international credit rating agency due to the deteriorating economic and budgetary parameters. Malaysia’s A- grade from S&P has a negative outlook at the moment.
“However, in a historically low interest rate environment, a sovereign rating downgrade may not necessarily translate into poorer general economic sentiment/confidence,” they stated.
However, if this occurs, Malaysia will no longer be the ASEAN member state with the second highest rating after Singapore, they noted.
Meanwhile, they predict Bank Negara Malaysia will keep the overnight policy rate at its historical low of 1.75 percent as long as the current monetary posture remains sufficiently accommodating.
They also forecast inflation to hit 3% in 2021, up from 1.1 percent last year, as rising oil costs push up prices compared to 2020, when oil was cheaper./n
