Malaysian Rating Corp Bhd (Bhd) remains cautiously optimistic about Malaysia’s gross domestic product (GDP) with an expected growth of 5.1% this year.
In a report led by its senior economist and head of research Firdaos Rosli, MARC said the forecast came slightly lower than its previous projection of 5.6%.
The revision took into the consideration the ongoing mobility restrictions and expected protracted economic scarring caused by rising COVID – 19 infections.
“We expect inflation to rise to over 4.5% in the second quarter (Q2) of 2021, though it will likely moderate to below 3.5% by year – end,” it said.
MARC said the government’s explicit policy priority in managing the present crisis was comforted by the incoming supply of vaccines and a massive public healthcare capacity.
“We remain cautiously optimistic that the Malaysian economy will find its optimum recovery pace soon, but risks remain ominous in the immediate term.”
The rating agency said Bank Negara Malaysia would likely hold the overnight policy rate (OPR) steady throughout 2021, despite the likelihood of relatively ‘high’ inflation by historical standards in the coming quarters.
“Going forward, many downside risks related to the pandemic could persist including those associated with policy responses, both internally and externally.”
The reinstatement of a nationwide lockdown will likely suppress potential recovery, undermining both the demand and supply sides.
“Risks will persist until Malaysia achieves a high vaccination – induced immunity in the population,” MARC said.
Although there is high possibility of another round of stimulus measures, the fiscal impact remains unclear.
“Boosting private consumption will profit short – term growth but would prove inflationary in the mid – term,” it added.
As government debt breached the temporary statutory debt ceiling of 60% of GDP, MARC said fiscal space would be limited without a regulatory review.
“Such a situation, if it persists in the post-pandemic era, will affect efforts to rebuild the economy. The implications for Malaysia’s medium – term growth prospect, needless to say, could be slower than in the pre – pandemic years.”
MARC said nationwide mobility restrictions must be evidence – based and implemented only as a last resort, noting that employing lockdowns must be decisive, without any half measures and flip – flops.
Malaysia’s GDP contracted 0.5% year – on – year (YoY) in the first quarter (Q1) of 2021 compared with a 3.4% contraction in the fourth quarter of 2020.
MARC said the Q1’s GDP results strongly suggested the worst recession was over, while targeting a return to positive YoY growth in Q2 of 2021.
“The subsequent quarter, however, would be much lower amid a stringent nationwide lockdown in a higher YoY base dubbed as a total lockdown,” it added.
- New Straits Times