RAM revises Malaysia’s 2021 GDP forecast lower to 3.8% amid continued lockdowns

Published on 28 Jul 2021.

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RAM Ratings expects Malaysia’s GDP growth to rebound at a slower rate of 3.8% in 2021 from the 5.0% forecast previously. The revision follows marked tightening of economic and social restrictions under Movement Control Order (MCO) 3.0 in May and the lockdown under Phase 1 of the National Recovery Plan (NRP) since June. The tougher restrictions and lower consumer mobility will substantially weigh on economic output, the overall impact of which is likely to exceed the fallout from MCO 2.0 seen earlier this year. However, economic losses, in our view, will still be less severe than the effects of MCO 1.0 last year.

Phase 1 allows only selected essential industrial and services sectors to operate, at a reduced capacity of 60%. This contrasts against MCO 2.0 where more sectors could run at a capacity deemed optimal, subject to complying with strict Standard Operating Procedures (SOPs). The immediate effect on industrial performance is already apparent in the manufacturing PMI falling to 39.9 in June – its lowest level since April 2020 – from 51.3 in May. The short list of eligible sectors also means that the mitigation impact from exports, seen in 1H 2021, is unlikely to play as big a role in lifting output. Further, micro, small and medium enterprises are especially pessimistic about sales prospects in the next few months. The RAM Business Confidence Index for 2Q 2021 fell to a new low of 33.2.

On the demand side, the economy is envisaged to remain under pressure owing to softer household spending, given the closure of most retail outlets and a weak labour market. The number of job losses filed with the Social Security Organisation (SOCSO) in June was 50% higher than in May, suggesting the unemployment rate could have once again risen. RAM expects the rate to stay elevated at 4.3% at end-2021, substantially above the long-run rate of 3.0%-3.5%. 

In view of weaker demand and deflationary pressure from lower electricity prices, we have also revised our inflation rate projection for 2021 to 2.7% from 3.0%. Electricity inflation is expected to trend down on tariff discounts under the PEMULIH stimulus package and the extension of the imbalance cost pass-through (ICPT) rebate through 2H 2021. While the Brent crude price has climbed steeply this year, any inflationary pressure from the same is curtailed by the retail pump price ceiling currently in place.

As vaccination rate continues to ramp up, we remain cautiously optimistic about an economic rebound in 4Q 2021. The government has set a new target to have all adults fully vaccinated by October. With an adult population of 70%, this would imply that the economy will fully re-open nationwide in November. This, when it happens, should provide a healthy lift to 4Q GDP growth.



The vaccination rate is still a key determining factor in our GDP forecast. A faster rate that allows transition into the less restrictive Phases 3 and 4 of the NRP would lend upside to our current projections. Unanticipated delays or a prolonged stay in Phase 1 could crimp forecasts further.



Analytical contact
Woon Khai Jhek, CFA
(603) 3385 2512

Media contact
Sakinah Ariffin
(603) 3385 2505


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