MARC lowers 2021 GDP growth forecast to 5.6%

MARC lowers 2021 GDP growth forecast to 5.6%
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KUALA LUMPUR (Feb 5): Malaysian Rating Corp Bhd (MARC) expects the country to record 5.6% economic growth in 2021, a lower forecast versus its previous projection of 6.4% announced last month.

In a statement today, the ratings agency said Malaysia’s growth in 2021 will be supported by trade, as exports outpace imports, although it will be lower versus 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, while a rebound by major trading partners, including China and Singapore, will support the country’s near-term growth.

The ratings agency had maintained its forecast of -5.7% GDP growth for 2020, which it noted is the sharpest decline since the 1998 Asian Financial Crisis.

For comparison, the Ministry of Finance expects Malaysia to see economic contraction of -4.5% in 2020, before growing between 6.5% and 7.5% in 2021.

“Despite various attempts to support aggregate demand throughout the crisis, we posit that private consumption will take a hit in 2020, decreasing by 4.2%. Nevertheless, it will remain the mainstay for Malaysia’s growth, partly underpinned by policy stimulus such as the cumulative 125-bps cut in the overnight policy rate and fiscal support to vulnerable groups,” said MARC.

“We expect growth in private consumption in 2021 to be sluggish following the trend of previous recessions,” it said.

Meanwhile, the decline in aggregate demand will result in an average inflation rate of -1.1% in 2020, before rising to an average of 2% in 2021 as demand picks up alongside higher energy prices.

While the spread of Covid-19 was contained following the first Movement Control Order (MCO) in the second quarter of 2020, MARC noted that the unemployment rate spiralled to 5.3% during the period, from 3.3% previously.

It said the rate has remained elevated and is expected to continue to trend sideways throughout 2021. MARC expects the unemployment rate to stand at 4.5% in 2020, before declining to 4% this year.

Investment is set for a rebound to growth this year due to the low-base effect, although it will remain constrained by mobility restrictions, MARC said, pointing to weaker business sentiment indicated by forward-looking indicators such as the Purchasing Managers’ Index, amid high daily Covid-19 infection numbers.

“As MCO 2.0 is less stringent than its previous iteration, we expect real GDP growth to rebound in 2021, primarily due to the abovementioned low-base effect, to 5.6%. 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,” said MARC.

It added that the present crisis will influence the country’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.

S Kanagaraju