GDP in 3Q to have slowed due to lockdown

BNM is expected to release the GDP figure this Friday


ECONOMISTS are predicting a sustained decline in Malaysia’s third quarter of 2021 (3Q21) GDP due to the long and generalised lockdown over the period but likely to show growth in the 4Q.

Bank Negara Malaysia (BNM) is expected to release the 3Q GDP number on Friday, but Bloomberg consensus forecasts the economy to have slowed to a growth of 0.1% year-on-year (YoY) for the period after a 16.1% expansion in the 2Q due to the base effect.

On a quarter-on-quarter (QoQ) basis, the consensus is for the economy to have contracted by 0.6% in the 3Q versus a contraction of 1.9% in the 2Q versus the 1Q.

HELP University economist Dr Paolo Casadio said consumption may be better than expected for the 3Q because of the earlier reopening in September including some positive impact from external demand relative to September.

“So, we still expect negative growth in GDP in the 3Q at around 1% or 1.5% compared to the Bloomberg consensus around 0.6%.

“This is a technical recession of two successive quarters of negative GDP. Reopening will be good, so the 4Q will be positive and push annual growth between 2% and 3%. Overall, I am not optimistic because China and Vietnam had very poor performance and this affects trade,” he told The Malaysian Reserve (TMR).

Centre for Market Education CEO Dr Carmelo Ferlito said the number of businesses closed down and unemployment was high during the 3Q with many economic activities reopening in September.

“I believe the 4Q will see an economic rebound QoQ and moderately on a yearly basis. We should expect 1% to 2% moderate growth in GDP for the full year of 2021.

“International border restrictions easing that allows people to travel easily will be a real game changer in the future,” he told TMR.

Dean of the Institute of Postgraduate Studies from Malaysian University of Science and Technology Dr Geoffrey Williams remains pessimistic of the prospects for growth of the economy this year.

He said the 2Q’s GDP growth figures were quite good due to two effects, first a low base effect because 2Q20 was the pit of the lockdown, and second an inventory effect with firms building stocks in anticipation of opening up again.

“In fact, in the 2Q21, there was a large increase in inventory stocks of around RM15.8 billion in real terms, this will be reversed in the 3Q21 and that will drag down GDP. These effects will run out now and we expect negative growth in the 3Q and a 2.5% YoY contraction in 4Q.

“For the year as a whole, we expect annualised growth to be between 1% and 2%, probably around 1.8% to 2%,” he told TMR.

Williams sees little risk of no inflationary pressure and expects headline inflation to hover around 2% to 2.2% while unemployment to remain at about 4.8% to 5%. He expects underemployment will remain high, around 20% of the workforce.

The Malaysian Institute of Economic Research (MIER) has forecast real GDP growth of 4% for 2021, but lowered the growth rate from 4.9%, due to the challenges caused by the pandemic.

The independent think tank noted that there are clear signs of a V-shaped recovery, especially with expanding aggregate domestic demand, comprising both private consumption and investment, continuing strong growth in net exports of goods and services, increasing net international reserves of BNM, and increasing inflows of both direct and portfolio investments by foreign investors.

“With the reopening of interstate travel, following the success of well-administered National Immunisation Programme and a lot less restrictive measures moving forward, real GDP growth is expected to pick up strongly to record between 5.5% and 6.5% in 2022, indicating that all resources are likely to be fully utilised, especially towards the latter part of next year,” it noted in its Malaysian Economic Outlook Third Quarter 2021 report.