GDP set for moderate fall in 3Q, sharper decline in 4Q

by NUR HANANI AZMAN / pic by MUHD AMIN NAHARUL

THE economy is expected to decline at a moderate pace in the third quarter (3Q) as economic activities resume and businesses reopen, recovering from the record slump recorded in 2Q.

Malaysia’s GDP will likely post a negative growth of -4.3% in the July-September period from a year earlier, according to a Bloomberg survey median forecast, rebounding from the -17.1% contraction in 2Q.

However, analysts are anticipating a sharper fall in the final quarter to end the year at -4.5% to -6%.

OCBC Bank economist Wellian Wiranto sees growth coming in at -4% year-on-year (YoY) in 3Q, which would mark a relative improvement from the sharp downtick of 2Q.

He said any hits from the Conditional Movement Control Order (CMCO) would be seen in 4Q, with the expiration of the loan moratorium adding downside pressure on the pace of economic recovery.

“As of now, we are still holding out the hope that the restriction measures will not affect economic activities to a great degree, as business operations remain largely open.

“Hence, we still hope to see growth breaking even at 0% YoY in 4Q, which would allow the 2020 full-year GDP to come in at -5.1% or so,” he told The Malaysian Reserve (TMR).

OCBC Bank predicts growth to come in at 5.5% YoY next year, as economic momentum starts to normalise more readily.

Institute for Democracy and Economic Affairs senior fellow and Centre for Market Education CEO Dr Carmelo Ferlito said the government’s responses to the pandemic, together with political instability, will affect the performance of the economy.

“We are now at a crucial moment to determine the direction for the next few months. What seems clear is that the government is aware that another strict lockdown is not affordable.

“Probably we shot too much and too soon at the beginning of the year, not expecting that Covid-19 size in Malaysia could grow to proportions similar to other countries,” he told TMR.

In September, the World Bank once again revised its forecast of Malaysia’s economic growth this year to -4.9%, down from an earlier estimate of -3.1%, as uncertainties on the speed of global recovery heighten.

The World Bank’s revised 2020 GDP forecast for Malaysia is within Bank Negara Malaysia’s contraction forecast of between 3.5% and 5.5% for the year.

However, given the rise of Covid-19 cases and the implementation of CMCO in a few states, Ferlito opined that it is vital that all government actions are targeted and communicated effectively.

“The confusion on the work-from-home policy is an example of how things should not be managed. Having said this, I think we have to expect a further slowdown in the economy with effects on unemployment and, more importantly, underemployment.

“Only careful management of the situation can bring Malaysia back on a growth path in 2021 — that is if a blanket MCO can be avoided and the economy is allowed to operate. However, an actual recovery is not to be expected if international borders remain closed.”

Ferlito said there is hope for a rebound if business travels and tourism are gradually allowed.

“My prediction is we can imagine a gradual recovery, with 2021 closing at 5% to 6%, if Covid-19 is contained, MCOs are avoided and international borders are reopened. Otherwise, the economy will remain flat and won’t go beyond a growth of 1% or 2%,” he added.