Economic recovery to pick up in 4Q but risks remain


MALAYSIA’S economy for the fourth quarter of 2021 (4Q21) is expected to rebound on the back of full resumption of economic activities, lifting of movement restrictions and high vaccination rate.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the 3Q GDP contraction of 4.5% year-on-year (YoY) suggests the domestic economy is extremely vulnerable to restriction on human mobility through measures such as the Covid-19 induced Movement Control Order (MCO) 3.0 that was enforced in late June this year.

Mohd Afzanizam expects the GDP to grow in the 4Q, possibly around 2%-3%, which means the country is on track to achieve the full year 2021 growth target of3%to4%.

“However, the future outlook will still be influenced by the Covid-19 factor although now the reopening of the economy has been very forthcoming following the uplifting of the interstate travel ban,” he told The Malaysian Reserve (TMR).

Mohd Afzanizam said measures to ensure a rise in new Covid-19 cases will not surge are extremely critical or risks of the return of MCO and the closure of the economic sector could be unavoidable.

“It is important for all of us to adhere and observe the standard operating procedures.

“Additionally, embracing the new way of working arrangement such as work from home should be encouraged especially for functions that can operate effectively and efficiently in this environment,” he said to ensure physical interaction can be kept minimal to reduce the risks of transmission.

Centre for Market Education CEO Dr Carmelo Ferlito said the 3Q GDP performance was markedly worse than expected.

He expressed concern that sooner or later the country is going to pay dearly for the government spending-led GDP recovery stimulus.

“The 4Q will definitely be good thanks to the reopening but it will be mainly led by consumption and government spending while investments remain low.

“I expect a yearly growth around 2%, though I am sceptical of numerical predictions and I think we should be more interested in the GDP composition and the growth of the different components.

“For example, a big growth mainly driven by government expenditures financed with debt or money printing is not good,” he told TMR.

Ferlito added that to put the economy on a stable recovery path, the government needs to look at creating an environment conducive to private investments.

He added that a government fuelled recovery will put the country on the perilous path of inflation with the risk of stagflation as government stimuli led jobs ten to be temporary in nature.

Malaysia’s GDP shrank 4.5% in 3Q weighed down by the re-imposition of nationwide Covid-19 containment measures.

On a quarter-on-quarter seasonally-adjusted basis, the GDP contracted 3.6%, which was a larger decline against the 1.9% contraction in the 2Q.

Correspondingly, the country’s monthly economic performance gradually improved from a contraction of 7.6% in July to a decline of 4.7% in August and further improved to -1.1% in September.

The country’s economy grew 3% for the sum of three quarters of 2021.

In a press briefing last Friday, Bank Negara Malaysia (BNM) governor Datuk Nor Shamsiah Mohd Yunus said economic activity has picked up as more states transitioned into Phase 2 of the National Recovery Plan.

The central bank expects a quick recovery as Covid-19 restrictions are eased and economic activities resume.

“Recent indicators suggest a more positive momentum going forward. This includes a pickup in production and construction activities, an improved labour market and strong external demand would all support a recovery.

“The growth outlook remains subject to Covid-19 risk factors globally and domestically, stability in global financial markets and gradual easing of supply chain disruptions,” the governor said.

Nor Shamsiah said the domestic economy is expected to benefit from strong growth among major trading partners such as China and the US, stronger commodity prices and strong demand for semiconductors to cater for remote work equipment and business digitalisation.

Chief statistician Datuk Seri Dr Mohd Uzir Mahidin noted the short-term economic indicator, leading index in August 2021 signalled the economy is most likely to pick up in the upcoming months.

“The economic recovery will be backed by the long term global and national agendas throughout 2021 to 2025 as outlined in the 12th Malaysia Plan, and ultimately able to restore the economic growth momentum,” he said in a statement last Friday.

BNM had cut the country’s growth outlook for 2021 to 3% from 4% in August, as the surge in Covid-19 cases and the reimposition of movement curbs weighed on consumption and investment activity.

However, Covid-19 cases in the country have dropped significantly in recent weeks after an aggressive vaccination programme, raising hopes for a recovery.

Malaysia has announced quarantine-free travel lanes with neighbouring countries Singapore and Indonesia and looks forward to reopening its borders to international visitors by Jan 1, 2022.