Narrower 1Q GDP contraction on the cards


MALAYSIA’S economy could surprise with a narrower decline of 0.5% year-on-year (YoY) for the first quarter of 2021 (1Q21) compared to the 3.4% contraction recorded in 4Q20 despite the reimplementation of Movement Control Order (MCO 2.0) between Jan 13 and March 4 this year.

United Overseas Bank (M) Bhd (UOB Malaysia) senior economist Julia Goh noted that this could mark an inflection point for the economy based on YoY GDP trend starting 2Q20.

She said a robust recovery in manufacturing and external trade activities alongside ongoing policy support are key factors mitigating the impact of stricter containment measures and aiding the recovery last quarter.

“Services sector is projected to record a smaller decline of 2.2% (4Q20: -4.9%), thanks to the acceleration of digital adoption, ongoing policy support and financial assistance, as well as the launch of new car models amid the extension of sales tax exemptions.

“Tourism-related industries such as accommodation, food and beverage, transport and storage continued to be weighed down by the ongoing containment measures,” she wrote in a note last Friday.

Bank Negara Malaysia (BNM) is scheduled to release 1Q21 GDP performance today.

UOB Malaysia reiterated its full-year growth forecast of 5% for the Malaysian economy in 2021 (2020: -5.6%; BNM forecast: 6%-7.5%).

RAM Rating Services Bhd, meanwhile, estimated 1Q21 GDP to contract by 2.1%, the fourth consecutive quarterly decline.

The contraction is expected to be slightly less pronounced than the preceding quarters’ (4Q20: -3.4%; 3Q20: -2.7%).

“This is because most economic activities were allowed to continue despite social restrictions, while strong external demand boosted industrial output during the quarter.

“The government’s various income-supporting policies are also seen to have somewhat mitigated the fall in consumption,” the rating firm said in a statement last Friday.

RAM Ratings envisaged the manufacturing sector as the main growth driver in 1Q21, with a 6.8% expansion (4Q20: 3%).

The research firm said the sector’s operational capacity, as indicated by the Industrial Production Index, continued to climb during the quarter.

It noted that overall exports surged 31% in March (February: 17.6%), buoyed by external demand recovery.

RAM Ratings maintained its 2021 GDP growth projection of 5%, given the slew of uncertainties such as the Covid-19 cases uptrend, the pace of the national vaccine programme, the new virus strains emergence and still-weak labour market conditions.

MIDF Amanah Investment Bank Bhd said a rebound in distributive trade has signalled a stronger economic performance for 1Q21.

“Malaysia’s distributive trade rebounded in March 2021 to the strongest growth since August 2018, after five consecutive months of contraction.

“The 9.3% YoY growth was propelled by all sub-components which registered higher annual increases during the month,” it said in a report last Friday.

MIDF noted that motor vehicle sales, in particular, surged by double-digit (34.6% YoY) as traffic volume to showrooms was significantly affected in the same month last year due to the implementation of the first MCO on March 18, 2020.

“Malaysia’s unemployment rate inched downward to 4.7% during the month in which the number of unemployed persons reduced by 24,400 persons to 753,200 persons.

“To a certain extent, this had influenced private consumption as reflected by the distributive trade performance in March,” it said.

For 2Q21, MIDF said distributive trade performance is anticipated to be even stronger due to a more evident base effect.

The research house said the current implementation of MCO 3.0 in targeted areas could have some economic impact.

However, the impact is believed to be smaller than previous MCOs and viewed to be temporary with vaccination programmes going on.

“The recovery in private consumption will be more evident from 2Q21 onward as the National Covid-19 Immunisation Programme has kicked off and vaccination rollout will continue by phases throughout the year besides benefitting from low base effect last year.

“Blanket withdrawal of i-Sinar could pave the way for unaffected or less affected contributors to increase their discretionary spending. Consumer inflation is expected to go up this year, but remains benign and supportive to consumption,” it added.

It further said the services sector would generally return to positive territory this year.

However, some services involving hotel and aviation are likely to still be pressured by the interstate travel ban and international border closure.