GDP to grow 4% this year

The external sector remains a bright spot with exports accelerating 44% YoY in 2Q, UOB analyst says 

by NUR HANANI AZMAN / pic by BLOOMBERG

UNITED Overseas Bank (M) Bhd (UOB Malaysia) maintains a 4% forecast for 2021 GDP albeit foreseeing potential downside risks depending on the economic performance in the second quarter (2Q) and 3Q. 

UOB Malaysia senior economist Julia Goh said the external sector remains a bright spot with exports accelerating 44% year-on-year (YoY) in 2Q and expects net trade to contribute positively to overall GDP in 2Q. 

“While near-term growth has been hindered by the Full Movement Control Order (FMCO) and Enhanced MCO, we think the second half of 2021 (2H21) outlook will be guided by the National Recovery Plan (NRP). 

“With eight states transitioning into the second phase of NRP that allows operating capacity of 80% alongside rising vaccination rates, we expect further relaxation of containment measures in 3Q. A firmer global recovery will also provide impetus to Malaysia’s export momentum,” she told The Malaysian Reserve (TMR). 

She said there are lingering concerns about rising infection rates and new virus variants, however, the impact of such pandemic developments will depend on the course of the government’s actions. 

“The latest communication from the government is that states that have moved on to Phase 2 will not revert back to Phase 1. 

“Also, it is anticipated that most states will move into Phase 4 by October at the earliest. This would provide a decent lift for GDP by 4Q assuming all economic sectors and majority of social sectors are allowed to resume by then,” she added. 

OCBC Bank had recently downgraded growth forecast to 4% from 6% because of the headwinds posed by the lengthy pandemic bout and restriction measures. 

Its economist Wellian Wiranto said in terms of upside risks, it may be harder to envision now compared to the flipside of things. 

“But two broad themes come to mind. One is that, the vaccination pace — which is already relatively impressive recently — picks up even further, allowing Malaysia’s economy to reopen fully by the end of 3Q and paving the way for a solid resumption in consumption recovery by 4Q. 

“Second is that, the exports uptick that we have witnessed in 1H21 can ramp up even more forcefully in 2H21 and especially into 4Q because of continued uptick in demand not just for the lynchpin electrical and electronic sector but also others including commodities,” he told TMR. 

Both scenarios are not impossible but would require quite a lot of stars to be aligned. 

JF Apex Securities Bhd analyst Jayden Tan said its latest GDP forecast for 2021 was 4.1% growth. 

“Our forecast growth is underpinned by rebound of construction and service sector and growth of manufacturing sector for supply side. 

“We are expecting a strong rebound on private consumption and net export in 2H12 for the demand side compared to the year 2020,” he told TMR.