2Q GDP growth to jump due to base effect

This was reflected in the volume of index services, industrial production index for manufacturing and the value of construction work done in June 


MALAYSIA’S GDP is expected to record a positive growth for the second quarter of 2021 (2Q21), after four quarters of contraction due to the impact of the Covid-19 pandemic. 

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid expects the GDP grow as much as 16.5% year-on-year (YoY) in the quarter due to the low base effect and the lingering impact of the virus spread. 

“The low base is the primary reason for the sharp increase. This was reflected in key indicators such as the volume of index services (+17.6% YoY in 2Q21 versus -3.6% in 1Q21), industrial production index for the manufacturing sector (+26.3% in 2Q21 versus +6.8% in 1Q21) and the value of construction work done (+42.6% in 2Q21 versus -10.5% in 1Q21) which have accelerated significantly during the June quarter,” he told The Malaysian Reserve. 

Mohd Afzanizam believes the monthly GDP print for June could be weaker owing to the full Movement Control Order (MCO) implemented nationwide in the month. 

He said the automotive sector saw a sharp decline in the total industry volume (TIV) to 1,921 units in June, after recording more than 46,000 sales in the preceding month. 

He pointed out that the 10% cap on operational capacity for the sector has severely impacted the sales. 

“As such, other sectors could face similar dynamics in June. Similar pattern could take hold as long the MCO measures are still in place and thus far, the key states such as Selangor and Kuala Lumpur are still in Phase 1 under the National Recovery Plan. 

“In that sense, the overall economic activities are expected to be timid in the immediate terms,” he noted. 

In 2Q20, the country’s economy recorded its worst contraction since 1998 at -17.2% following the impact of MCO 1.0. 

Malaysian Rating Corp Bhd (MARC) forecast a year-on-year (YoY) real GDP growth of 13.2% for the quarter, adding the figure would likely be Malaysia’s highest quarterly growth ever recorded. 

It added the double-digit growth primarily reflects a favourable base effect as the economy contracted 17.2% in the same period a year ago due to a strict nationwide lockdown. 

The rating firm stated the projected strong YoY quarterly growth suggests the 2Q21 performance cannot offset last year’s contraction, thus, fall short of steering the Malaysian economy to pre-pandemic output levels. 

“As the economy continues to reel from intermittent lockdowns, we posit it will be a long and winding road ahead towards recovery,” it noted in a statement yesterday. 

It expects private consumption to remain the key driver of growth but thinks the more stringent mobility restrictions could have impacted growth towards the end of 2Q21, such as the closure of non-essential services implemented since mid-May. 

MARC said growth in investments will likely decelerate due to political instability and the government’s reactive handling of the pandemic. 

On a quarter-on-quarter basis, MARC expects real GDP growth to decline by -4.4% (1Q21: -4.1%), which would translate into a double-dip contraction which may likely spill over to the next quarter. 

“We believe Malaysia’s near-term growth outlook strongly hinges on the stringency of mobility restrictions and the pace of inoculation moving forward. 

“Further delays of social amelioration would exacerbate long-term economic scarring,” it explained. 

MARC added the favourable base effects will dissipate in the coming quarters and it is apt to view growth prospects in a much longer horizon.