Moody’s: Rising infections, restrictions delay recovery

By SHAHEERA AZNAM SHAH / Pic BERNAMA

THE recovery of emerging economies in South-East Asia, including Malaysia, will likely be dragged by the rising number of Covid-19 infections and the reimposition of tighter restrictions in the region, according to Moody’s Analytics.

The research firm said countries such as Japan and Korea have been battling the third wave of the pandemic, while the flare-ups in China’s Hebei Province have dampened optimism ahead of the Chinese New Year celebrations.

“Global economic activity slowed sharply in the final months of 2020 amid the resurgence in daily coronavirus infections and the reinstatement of localised lockdown restrictions in

North America and Europe. “Asia’s robust economic recovery has also slowed amid the recent rise in new cases in several major cities,” the company noted in its latest report titled “Global Outlook: Rocky Start to 2021”.

The Malaysian government has maintained its economic growth projection for the year at 6.5% to 7.5% despite revisions made by several research houses on the country’s GDP growth forecast to a lower target.

Recently, RHB Investment Bank Bhd (RHB Research) downgraded its GDP projection to 5.4% from 6.3% previously, mainly due to the re-implementation of the Movement Control Order (MCO) 2.0 beginning Jan 13.

RHB Research economists said the projection is based on the assumption that MCO 2.0 will be prolonged to four weeks against the government’s two-week guidance.

“The revision reflects a more conservative growth outlook amid the retightening of the social-distancing measures and adjustments to our growth timeline,” they said.

United Overseas Bank (M) Bhd (UOB) also lowered its GDP growth forecast for 2021 from 6% to 5%, with an assumption the MCO 2.0 period will last for a month.

Other research firms that have revised Malaysia’s economic growth target for the year are Fitch Solutions Group Ltd, which lowered the forecast from 11.5% to 10% and Japan’s Mizuho Bank Ltd from 6.7% to 5.9%.

Consultancy firm Capital Economics Ltd also projects South-East Asian economies to grow an average 7% this year against its previous forecast of 10%.

Moody’s Analytics is expecting global real GDP to rebound by 5% in 2021 following the record 4% contraction in 2020, adding that global economic recovery will remain moderate until vaccines are widely distributed.

“In recent weeks, several Asian countries have stepped up their efforts towards vaccine procurement and implementation plans which will be a logistical feat in some of the region’s emerging markets given the large populations and numerous infrastructure bottlenecks.

“However, strong infrastructure investment in China bodes well for Asia’s export-oriented economies,” it stated.

It further noted that the ongoing support from governments and central banks remains an imperative element in reviving domestic demand as economies navigate the recovery in 2021.

“Although governments in many countries are constrained by the lack of fiscal space, major central banks remain prepared to do whatever it takes to support the recovery.

“Interest rates are likely to remain at rock bottom over the next few years and credit facilities are unlikely to be wound down any time soon. As there is little risk of early removal of stimulus, the odds of a policy error by a major central bank are low,” it stated.