Image credit: Al Jazeera
KUCHING: As expected, Malaysia’s economy posted a sharp turnaround in the second quarter of 2021 (2Q21) after four consecutive quarters of contraction but Malaysian Rating Corporation Bhd (MARC) opines that the country is still far from a full recovery
According to MARC, while it was the highest quarterly growth ever recorded, the performance did not offset the deep contraction in last year’s corresponding period.
“The economy shrank 3.9 per cent compared to 2Q19, so it still fell short of returning to pre-pandemic output levels,” the ratings agency said.
“Bank Negara Malaysia’s (BNM) significant downward revision of its gross domestic product (GDP) growth forecast for 2021 from six per cent to 7.5 per cent to three per cent to four per cent is a testament to Malaysia’s long and winding recovery path.”
MARC agreed with BNM’s revised forecast as the agency’s latest financial year 2021 (FY21) projection fell within the range of 3.9 per cent.
It recapped that Malaysia’s economy recorded a sharp turnaround of 16.1 per cent year on year (y-o-y) in 2Q21 compared to a contraction of 17.2 per cent in 2Q20.
“Strong growth in early 2Q21 lost steam due to the stricter national lockdown imposed since late May, resulting in contractions in most industries and expenditure components.
“Overall, the economy grew at 7.1 per cent in the first half of 2021 (1H21) from a decline of 8.4 per cent during 1H20.”
Given the economy is still reeling from intermittent lockdowns and the dissipating base effect, MARC foresees a slight contraction in 3Q21.
Firms’ operating capacity constraints saw the manufacturing PMI remaining in the contraction zone, at 40.1 in July 2021
“Challenging operating conditions such as supply chain disruptions would continue to weigh on business investment.
“Consumer sentiment hovered below the optimism threshold, mainly attributable to the elevated unemployment rate (2Q21: 4.8 per cent).
“Even so, an early resumption of economic activities would be the saving grace in avoiding a double-dip recession in 3Q21.”
MARC expected headline inflation to ease to below three per cent in 3Q21 as the base effect dissipates.
The ratings agency opined that BNM will hold the key overnight policy rate (OPR) at a historical low of 1.75 per cent, at least for the rest of the year.
MARC noted that the current monetary settings are sufficiently accommodative.
It further noted that lowering the OPR will likely result in banks becoming more cautious in lending, more so following the announcement of a repayment moratorium.
“The marked revenue shortfalls and increased expenditure will cause fiscal deficit to breach the government’s target of six per cent of GDP in 2021.
“Instead, we think that the fiscal deficit could come in at least 6.5 per cent of GDP.
“The narrowing policy space and limited fiscal resources could push the government to temporarily raise the self-imposed statutory debt ceiling again, this time to 65 per cent.”
Source: https://www.theborneopost.com/2021/08/22/malaysias-economy-still-far-from-full-recovery/