MARC sees slow economic recovery for Malaysia

Since the pandemic-induced recession, the country’s economic recovery has been moderate and uneven 


MARC Ratings Bhd said Malaysia’s pace of recovery was relatively slow despite a significantly larger fiscal size seen in the post-2008 Global Financial Crisis (GFC). 

Since the pandemic-induced recession, MARC said that Malaysia’s economic recovery has been moderate and uneven. 

“We noticed that real GDP took eight quarters to return to pre-pandemic levels, a significantly slower recovery than post- 2008 GFC when it took only five quarters to return to pre-crisis peak,” said MARC economists Firdaos Rosli, Lee Si Xin and Lyana Zainal Abidin in a report yesterday. 

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He added that the GFC resulted in a supply shock while the Covid-19 pandemic is more complex and profound, affecting both the demand and supply side of the economy. 

They estimated that the Full Movement Control Order implemented from June to August 2021 cost about RM230 million a day in lost economic output. 

“With mobility restrictions in place for too long, more fiscal support is needed for the Malaysian economy to return to full employment,” they said. 

MARC admitted that the government has been managing the pandemic situation well, but the policies focusing on promoting future growth are still lacking. 

“This may, in turn, affect the economy’s fiscal metrics following a recovery. In echoing Bank Negara Malaysia (BNM)’s call for structural reforms, we also believe that Malaysia needs new thinking about how to address shocks in the future,” they said.

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Meanwhile, MARC forecasts Malaysia’s GDP to grow at 5.7% which aligns with BNM’s targets of 5.3%-6.3%.

However, the economists said that they are less upbeat about the momentum of private consumption compared to the scenario envisioned by BNM. 

“We foresee private consumption growth to pick up to 6.9% in 2022, lower than BNM’s forecast of 9%,” they noted. 

The economists also said the central bank’s domestic growth has more downside than upside risks. 

“Aside from the prolonged and further escalation of geopolitical tensions and global supply chain disruptions, the resurgences of Covid-19 cases in China could also significantly impact the country’s trade and growth,” they said. 

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Moreover, the faster-than-expected pace of monetary policy normalisation in major economies would also coincide with tightening financial conditions that do not bode well for spending and investments. 

“The downside risks, if they materialise, would prompt a downward revision to our growth projection,” they noted. 

Nevertheless, the economists laud the government’s call to reaffirm its position to avoid impositions of nationwide lockdowns and strict containment measures. 

Meanwhile, the economists said that the resurgence of vaccine-resistant Covid-19 variants of concern could still impact the economy through high absenteeism and cautious sentiments, according to BNM. 

“We believe that a stronger pandemic recovery requires zero non-pharmaceutical intervention since vaccines are ubiquitous,” they said. 

On the reopening of international borders, MARC expects higher tourist receipts in the coming months, particularly from Singapore. 

“However, we feel that it is difficult to assess the overall welfare effects of border reopening given the divergence in international border restrictiveness such as China, Malaysia’s third-largest tourist source country and of which tourist receipts accounted for nearly 1% of GDP before the pandemic,” they noted. 

MARC also sees BNM’s expectation that labour market conditions would continue to improve to 4% in 2022 compared to 4.6% in 2021 as hiring activity has emerged. 

“We believe that the government’s plan to raise the minimum wage if executed evenly across all sectors and regions would hamper the hiring momentum. 

“If micro and small industries are excluded, as recent official announcements suggest, we foresee no real economic benefits to the new minimum wage level,” they said. 

While the Malaysian economy is on a recovery trend, however, mobility remains constrained compared to pre-pandemic times. 

According to MARC, the use of public transport, especially urban rails, saw a sharp drop since the pandemic, but vehicle traffic on tolled highways has rebounded to close to pre-pandemic levels, based on Google Mobility data. 

For the construction sector, BNM anticipates the growth to rebound in 2022 driven by the resumption of large infrastructure projects and implementation of small-scale infrastructure projects under Budget 2022 and the 12th Malaysia Plan. 

“We opine that strengthening infrastructure is crucial for economic development through, for instance, attracting quality investments, promoting job creation and higher overall wages,” they said. 

Meanwhile, BNM expects more new residential property launches as confidence improves in time. 

“However, we remain concerned about the high property overhang, which could suppress property sales as prices remain sticky-down,” they added.