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Malaysia’s economy to bounce in Q1 on strong trade

Malaysia’s gross domestic product (GDP) growth is expected to rebound sharply in the first quarter (Q1) of 2021, following the sharper than expected exports growth, Kenanga Research said. Photographer: Samsul Said / Bloomberg

Malaysia’s gross domestic product (GDP) growth is expected to rebound sharply in the first quarter (Q1) of 2021, following the sharper than expected exports growth, Kenanga Research said.

The firm said this would be largely driven by the strong performance of the manufacturing export sector, fuelled by the technology upcycle amid strong demand globally for IT related products and commodities following the economic reopening.

Malaysia’s electrical and electronics (E&E) exports jumped 27.9% year on year (yoy) in Q1 2021 mainly due to direct consequence of the COVID – 19 pandemic which exceptionally revived demand for PCs as working and learning became home based for many.

“As E&E accounts for the bulk of manufacturing exports, we estimated that value-added manufacturing output could have expanded by 7.3% in Q1 2021 and contributed 1.6 ppt to GDP growth,” it said.

Kenanga Research said the spillover from the manufacturing export growth was more pronounced on the demand side.

The firm has estimated that value-added exports could have expanded by 13.5% from 1.8% in the fourth quarter (Q4) of 2020, contributing 8.2 ppt to overall Q1 2021 GDP growth.

“Given that growth of value-added imports is estimated to come in lower at 10.5% (5.8 ppt), net exports is expected to surge to 44.4%, contributing 2.4 ppt to GDP growth.

“The higher contribution of net exports to Q1 2021 GDP could have far outpaced the negative growth contribution from aggregate private expenditure (-1.7 ppt) which consequently dragged the overall domestic demand growth contribution to -0.3 ppt,” it said.

Kenanga Research said the economy was expected to track a firmer recovery path from Q2 due to the base effect and underpinned by sizeable fiscal measures and gradual reopening of the economy.

The firm said although it was concerned about the spread of new strains of COVID – 19 and alarming rise in the number of infections locally and abroad, the base effect and strong exports could aid Q2 GDP growth to accelerate to 14.3% or even higher depending on the impact of the stimulus spending and a smooth vaccine rollout.

“Furthermore, the latest (and may not be the last) fiscal stimulus via Pemerkasa would support growth recovery and prevent further setbacks.  This will be further bolstered by the wider progress of COVID – 19 vaccination, the continuation of mega infrastructure projects and an improved consumer sentiment.  Hence, barring an unforeseen risk of a major uncontrollable widespread of COVID – 19 pandemic, we maintain our 2021 GDP growth projection of a strong rebound of 6.5% from 5.6% in 2020,” it added.

  • New Straits Times