KUALA LUMPUR (Jan 12): Analysts have estimated the second round of the movement control order (MCO 2.0) to drag Malaysia’s gross domestic product (GDP) growth by 0.7 to 0.9 percentage point (ppt) this year.

MIDF Research said in a note today that it estimated the impact of the two-week MCO in five states (Selangor, Penang, Johor, Melaka and Sabah) and all federal territories (Putrajaya, Kuala Lumpur and Labuan) together with the conditional MCO (CMCO) in six other states (except Perlis and Sarawak) could lower GDP growth by up to 0.8 ppt.

“In other words, it will result in a slower increase in Malaysia’s economic growth this year at 6.2% year-on-year (y-o-y) [versus our current projection of 7% y-o-y],” it said.

According to the research house, cumulatively, all states and federal territories affected by the MCO and CMCO contribute almost 90% of Malaysia’s GDP.

Meanwhile, CGS-CIMB Research estimated daily economic losses due to MCO 2.0 from tomorrow (Jan 13) to Jan 26 at RM750 million, higher than the RM200 million incurred under the existing CMCO but significantly less painful than the RM2.4 billion lost during the first MCO from March to May 2020.

“As such, we expect each fortnight of MCO implementation to reduce our full-year GDP growth forecast of 7.5% for 2021 by RM10 billion or 0.7 ppt,” it said.

While maintaining its 2021 GDP growth forecast at 6% y-o-y for now, Hong Leong Investment Bank (HLIB) Research on the other hand also anticipated that the two-week MCO 2.0 could shave 0.9 ppt off GDP growth.

Overall, analysts reckoned that MCO 2.0 would be less painful than the first MCO as it is less strict with more essential economic sectors, such as manufacturing, construction, and trading and distribution, which are allowed to operate. Besides, the roll-out of vaccines could lift recovery.

However, due to potential downside risk, analysts expect the central bank to lower its overnight policy rate (OPR) this year.

“We reckon there is now a higher change of BNM (Bank Negara Malaysia) reducing the OPR by another 25 basis points (bps) in 2021,” said HLIB Research.

CGS-CIMB also expects BNM to debate further monetary policy easing at its next Monetary Policy Committee (MPC) meeting on Jan 20, and did not discount further cuts in the OPR, which is currently at 1.75%.

Given the risk that the MCO may be extended beyond Jan 26, CGS-CIMB opined that additional policy support may be needed to support the economy.

“The government could accelerate or augment measures under Budget 2021, including cash payments, though fiscal constraints, particularly on the government debt ceiling, may curb its ability to announce large fiscal stimulus measures in the near term,” it said.