Faster vaccination, faster economic recoveries

Moody’s foresees the national GDP growth to rise slightly above 6% this year


MALAYSIA could escape the economic fallout earlier than scheduled with the completion of the National Covid-19 Immunisation Programme that will give a brighter mid-term and long-term outlook, resulting in a better credit profile, said Moody’s Investors Service Inc.

Recently, the government has decided to speed up the vaccination rate, with the completion date of the immunisation programme being brought forward from the first quarter of 2022 (1Q22) to 4Q21.

Moody’s Sovereign Risk Group assistant VP and analyst Christian Fang said based on the baseline assumption of the government’s aim, Moody’s foresees the national GDP to rise slightly above 6% growth this year.

“But if the economy can be reopened quicker than that (the end of vaccination programme), that can be the upside point.

“If the vaccination programme concludes quicker, it will result in the economic sector to open much earlier (than projected),” he said during the Inside Asian Series’ Media Roundtable by Moody’s held virtually yesterday.

Fang, however, noted that it will be a difficult indicator to forecast credit rating, as the evolution of the Covid-19 virus will also affect how the government functions in responding towards the situation, which directly impacts the economic activities.

As of now, with the Covid-19 cases reported to be stable, the government is speeding up the rollout of the immunisation programme, making certain that 80% of the population could be inoculated by year-end.

However, issues have surfaced relating to the shortage of vaccine stocks and slow vaccination registration from the public.

“In terms of impact on credit profile, we are looking at mid-term growth of the countries, as one-year recession does not really affect our view of economic strength.

“So, we are looking at a 10-year average of GDP growth and the long-term outlook, such as the capacity of the economy to grow within the next couple of years rather than one of shock.

“But, one of shock does matter, if it resulted in the second-round effect in the economy,” Fang said.

For instance, he said the short-term setback would be the result of banking system issues like massive bankruptcy.

“Then, this could risk a potential to weaken the economy in the medium term, and subsequently would cause a longer-term impact which would cause negative rating,” said Fang.

He opined that so far, with more than RM300 billion stimulus to fight Covid-19 impact delivered by the government, the fiscal policy has cushioned the economic impact for the short-term period, attributing to the strength of the country’s economy.

This includes the enrolment of the loan moratorium and wage subsidy programmes.

Overall, Fang said Malaysia’s growth potential is stronger than its peers, despite the incomes being slightly below average in its peer group — which includes countries such as Indonesia, the Philippines, Thailand, Latvia, Mexico and Ireland.

“Our estimate of Malaysia’s growth over 2021 to 2024 will be among the highest in its peer group. Here, when I am looking at its peer group, I am referring to A2 to BAA1 peers. Malaysia is rated A3 with a ‘Stable’ outlook,” he said.

Fang attributed the strong growth potential to Malaysia’s economic diversity and complexity.

Among others, he said Malaysia’s export basket includes a range of goods, from items like electrical and electronics, and chemicals to more basic exports such as food and commodities.

“Combined with solid institutions that have a track record of effective macroeconomic management, the high growth potential anchors Malaysia’s credit profile and supports its debt carrying abilities,” he said.

Read our previous report here

World Bank lowers Malaysia’s GDP growth to 6%