KUALA LUMPUR – Malaysian Rating Corporation Bhd (MARC) expects Malaysia’s real gross domestic product growth to rebound to 5.6% year-on-year (y-o-y) in 2021 given how current movement control order is less stringent than its previous iteration.
The country’s GDP growth is expected to be supported by trade as exports outpace imports, albeit lower compared with pre-pandemic levels, it said.
“Exports will continue to gain traction from the upturn in global electronics demand as well as the increase in commodity prices.
“We forecast that all GDP expenditures will observe a similar trend, but this is undoubtedly contingent on how the pandemic pans out internally and externally,” it said in a statement today.
A rebound by Malaysia’s major trading partners such as China and Singapore will also buttress the country’s near-term growth, it added.
However, MARC said it forecasts that Malaysia will record the sharpest contractions in both its real GDP growth and public investment since the 1998 Asian financial crisis at -5.7% and -19.8% respectively.
“All GDP expenditures are expected to decline in varying degrees, but we project public expenditure to expand by 4.6% year-on-year due to fiscal injections in 2020,” it said.
Despite various attempts to support aggregate demand throughout the crisis, MARC opines that private consumption will take a hit in 2020 decreasing by 4.2%.
“Nevertheless, it will remain the mainstay of Malaysia’s growth, partly underpinned by policy stimulus such as the cumulative 125 basis points cut in the overnight policy rate and fiscal support to vulnerable groups.
“We expect growth in private consumption in 2021 to be sluggish following the trend of previous recessions,” it said.
MARC also anticipates that the decline in aggregate demand will cause the inflation rate to register at an average of -1.1% in 2020.
“As demand picks up alongside higher energy prices, the inflation rate will likely rise to an average of 2.0% in 2021,” it said.
Although Malaysia was able to contain the spread of Covid-19 following the first MCO in the second quarter of 2020, MARC said the unemployment rate spiralled upwards from 3.3% to 5.3% during this period.
“It has remained elevated and we project that it will continue to trend sideways throughout 2021.
“Therefore, we anticipate that the unemployment rate will come in at 4.5% in 2020 before declining to 4.0% this year,” it said.
While investment is set for a rebound to growth this year, owing to the low-base effect, it will remain constrained by persistent mobility restrictions.
Forward-looking indicators such as the purchasing managers’ index suggest weaker business sentiment as daily Covid-19 cases remain high, said MARC.
“The present crisis will influence Malaysia’s appetite for reforms. Judging from the impact of the Asian financial crisis on the Malaysian economy, we expect reverberations from the present crisis to linger for some time and accentuate the economy’s weak points.
“On this note, we are hopeful that policymakers will take a longer-term view with a short-term action plan and build the right foundation for a stronger growth trajectory when risks subside in time,” it said. – Bernama, February 5, 2021
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