Published on 07 May 2021.
RAM estimates Malaysia’s GDP to have contracted 2.1% in 1Q 2021 amid MCO 2.0. Nonetheless, this contraction - the fourth consecutive quarter of decline - is expected to be slightly less pronounced than the preceding quarters’ (4Q 2020: -3.4%; 3Q 2020: -2.7%). This is because most economic activities had been allowed to continue despite social restrictions, while strong external demand boosted industrial output during the quarter. The Government’s various income-supporting policies are also seen to have somewhat mitigated the fall in consumption.
We envisage the manufacturing sector as the main growth driver in 1Q 2021, with a 6.8% expansion (4Q 2020: 3.0%). This sector’s operational capacity – as indicated by the Industrial Production Index – continued to climb during the quarter. Buoyed by the recovery of external demand, overall exports surged 31.0% in March (February: +17.6%). Moreover, data indicate that the deterioration of retail trade, one of the hardest hit sectors, was much less severe than during MCO 1.0 in April 2020. This had helped to contain the downward pressure on growth in 1Q 2021.
Looking ahead, we expect y-o-y economic growth to rebound in 2Q 2021, particularly from the preceding year’s low-base effects. That said, the spike in COVID-19 infections and the reimposition of social restrictions (MCO 3.0) in many key economic centres represent major downside risks to Malaysia’s GDP growth, as they suppress consumer confidence and household spending.
We are maintaining our 2021 GDP growth projection of 5.0% for now given the slew of uncertainties such as the uptrend in COVID-19 cases, the pace of the national vaccine programme, the emergence of new virus strains and still-weak labour market conditions. All said, Malaysia’s success in controlling the spread of the coronavirus in 2Q 2021 while upholding the encouraging momentum in the first quarter may shore up economic growth this year.
Woon Khai Jhek, CFA
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