KUALA LUMPUR (Nov 10): UOB Global Economics and Markets Research has projected Malaysia’s third quarter real gross domestic product (GDP) to fall by 4.3% year-on-year, after the economy lost traction.

On a quarter-on-quarter (q-o-q) basis, the GDP is expected to slip 1.6%, marking the second straight q-o-q GDP contraction on a seasonally adjusted basis and signifying a technical recession, UOB economists Julia Goh and Loke Siew Ting said in a note.

They said the July to September economic indicators suggest that Malaysia’s economy lost traction in 3Q21 due to the reintroduction of a nationwide lockdown and weak investment sentiment.

However, they noted that the technical recession is unlikely to extend into 4Q21, as containment measures were lifted and most economic and social activities have been allowed to reopen this quarter.

Bank Negara Malaysia will release the 3Q21 GDP data on Friday (Nov 12).

According to Goh and Loke, all sectors are expected to see negative growth in the quarter, led by the construction sector.

Support for the manufacturing sector would come from exemptions to allow operation of essential sectors, they said.

The services sector, they said, will be dragged down by weaker tourism-related activities.

Meanwhile, the agriculture sector is projected to record a larger decline in output as a result of labour shortages, while the mining and quarrying sector will be weighed by sluggish crude oil output.

“Government spending and further stock replenishment activities are anticipated to partially cushion the weakness in other aggregate components, amid an expected negative net trade contribution to overall GDP in 3Q21,” Goh and Loke said.

They added, however, that Malaysia’s economy has started to regain momentum and is expected to return to positive expansions from 4Q21 through 2022.

They said the improved outlook is augmented by broader vaccine coverage, supportive global demand, Malaysia’s transition to an endemic phase, normalising domestic demand, resumption of infrastructure spending, and further fiscal support from Budget 2022 unveiled on Oct 29.  

Pending the actual 3Q21 GDP numbers and barring any unexpected virus related and external risks, they are keeping their full-year GDP growth forecasts at 4% for 2021 and 5.5% for 2022.

This compares with the Ministry of Finance's forecast of 3% to 4% for 2021, and 5.5% to 6.5% for 2022.