GDP likely to be revised down

This is mainly due to the fact the nation is still managing Covid crisis and the timeline set could see improvement in 4Q21


THE government may have no option but to revise down the GDP figure for the year, although economists said it is only reasonable for it to do so pending the GDP performance for the second quarter of 2021 (2Q21).

This is mainly due to the fact the nation is still managing Covid crisis and the timeline set could see improvement in 4Q21.

Economic analyst Assoc Prof Dr Baharom Abdul Hamid said looking at 1Q21 economic growth, on a year-on-year (YoY) basis, it declined marginally by 0.5% compared to the same period last year.

“If we look on a monthly statistic for January and February, growth declined at a rate of 3.5% and 3.6% respectively before rebounding strongly in March (6%), and just as we thought Malaysian economy was moving north, on the way to recovery, we were hit by the next wave of Covid-19 new cases, derailing our aspiration, sending us sprawling as we have to face another almost ‘total lockdown’.

With the lockdown and constraints of economic sectors being shut down, we are looking at another decline for April, May and June. However, YoY growth might paint a different picture because 2Q20 was one of the worst due to the Movement Control Order (MCO 1.0), declining 17.1%, thus we might perform marginally better than that,” he told The Malaysian Reserve (TMR).

As for the annual growth forecast, Baharom said Malaysia needs to revise GDP downwards compared to the earlier numbers of between 6% and 7.5% as it depends heavily on the National Recovery Plan (NRP).

“Even looking at the time horizon expected, best-case scenario, I think we would only be growing back in 4Q, as the 3Q would be the transitional period.

“My belief is that a positive growth rate between 2.5% and 4.5% would be a better forecast based on almost best-case scenario.”

OCBC Bank (M) Bhd economist Wellian Wiranto sees Malaysia’s growth coming in at around 4% YoY this year.

“Even though the restrictions in MCO 3.0 are less stringent than MCO 1.0 — the all-important electrical and electronics production, which contributes about 40% of exports, is allowed to take place for instance — we have nonetheless downgraded our forecast from 6% YoY before because of the impact on business activities and consumer confidence.

“Overall, we are still holding out the hope that Malaysia can transition out of Phase 1 into a less stringent Phase 2 by early next month, which would help limit the economic damage, but much would depend on the case counts and vaccination pace, as laid out in the NRP,” he told TMR.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said situation is extremely fluid at the moment and scenarios could adversely change.

In that regard, he explained that the lifespan for economic forecasts is likely to be very short as revision tends to become more frequent, given the prevailing condition.

“While this exercise can be troublesome, it is done out of necessity. The scenario-building exercise is highly dependent on the most recent economic forecast.

“This is something that we need to deal with during economic calamities. Otherwise, the decision made may not be able to yield the desirable outcome,” he told TMR while revising 2021 GDP downward from 5% to 4.2%.

Bank Negara Malaysia and the Finance Ministry are currently looking at the details of the 2Q21 performance, given the ongoing total lockdown that has affected the economy.

MIDF Research is forecasting a GDP growth of 4.6% for 2021.

With the MCO or lockdown still in full cry, Oanda Corp senior market analyst Jeffrey Halley sees no other path than to scale back GDP growth projections this year, and to not do so would be ignoring reality.

“Rapid progress on controlling the current wave of Covid-19 and even faster progress on vaccination numbers, would be required just to maintain that range, and neither is looking likely at the moment.

“In my opinion, Malaysia’s GDP is likely to be revised down and I see a range of 5.5% to 6% as more realistic,” he told TMR.