Moody’s: Malaysia’s economic recovery lags behind APAC peers

The country will likely surpass its peaked economic growth in 2Q22, only ahead of the Philippines


MALAYSIA may experience a delay in economic recovery, specifically in raising the growth of the country’s GDP to match the peaked growth in the last quarter of 2019 prior to the Covid-19 pandemic hit, according to Moody’s Analytics Inc.

Based on the research firm’s estimation, Malaysia will likely surpass its peaked economic growth in the second quarter of 2022 (2Q22), only ahead of the Philippines and lagging behind other Asia-Pacific (APAC) peers.

“When GDP finally surpasses its pre-pandemic peak, there is a good chance that personal income will also have rebounded, leading to stronger consumer spending and a healthier domestic economy.

“The timing of this milestone is, therefore, a key aspect of economic recovery. By mid-year, much of the APAC region will achieve this milestone.

“By the end of 2021, only Thailand, Malaysia and the Philippines will still be struggling to reach this point of their economic recovery,” it said in a report yesterday.

Looking at the entire region, Moody’s said APAC will continue to recover from last year’s deep downturn as vaccines become

more widely available, while global demand for goods improves and local domestic economies strengthen on the back of pent-up consumer demand.

“The outlook for the APAC region is improving as the global economy is on the cusp of acceleration due to the global pace of vaccination and stimulative fiscal policy.

“Asia is currently heading the economic recovery, although the pace is far from evenly distributed across the region, with China, Taiwan, Vietnam and New Zealand leading the way.

“Singapore and Malaysia are leading South-East Asia, while Indonesia and Thailand are still struggling with the coronavirus and a slow vaccination pace,” it added.

On the positive side, the research house predicts that Malaysia will benefit from the close trade linkages between the APAC countries as the Chinese economy is on the rise.

“North Asia, particularly Taiwan and South Korea, benefits from close linkages to China’s technology-producing industries, while much of South-East Asia is also pulled along by China, especially Vietnam, Singa- pore and Malaysia are also helped through exports of technology goods.

“The rising prices for commodities have aided Malaysia and Indonesia,” Moody’s said.

The research firm added that although the outlook for the region is improving, it is very much contingent upon continued control of the coronavirus.

“The lack of control of the pandemic, the inability to acquire vaccines, and the relative distance from export supply chains all factor into the outlook for the Philippines to be among the weakest in the region.

“Indonesia and Malaysia have finally brought their Covid-19 waves under control, but the number of cases in both countries is still high, posing considerable risk to the outlook,” it said.

Moody’s said the fiscal stimulus in Japan, Malaysia and Singapore are expected to minimise the risk of a downturn in 2021 as inflation expectations are rising across the region.

“Rising 10-year bond yields also signal rising inflation expectations, which could result in policy tightening earlier than expected if measured inflation were to accelerate rapidly.

“The rates within APAC are generally rising at a slower pace than in the US and the Federal Reserve is sending a clear signal that it will not raise the federal funds rate any time soon,” it said.

It added that the unemployment rate is also expected to rise in the current quarter, although the accelerating domestic economy should be able to turn this around in the second half of the year.

“Others with significant fiscal support programmes — Malaysia, Singapore and Japan — are expected to maintain the programmes through the end of this year, a time when vaccines will be more widely available and their domestic service providing industries will be hiring once again,” it said.