Malaysia’s GDP is expected to expand to 5.6% this year, taking into account the recent imposition of movement restriction
MALAYSIA’S growth prospects for 2021 remain in sight, driven by broader global recovery and strengthened domestic demand amid the recent surge in Covid-19 cases.
Asean+3 Macroeconomic Research Office (AMRO) economist Diana Rose del Rosario said the research house is projecting Malaysia’s GDP to expand to 5.6% this year, taking into account the recent imposition of movement restriction.
“Malaysia’s economy, like many others, was disrupted by the Covid-19 pandemic and the nationwide lockdown imposed in the second quarter of 2020 (2Q20) led to an economic recession.
“We did see a glimpse of strong rebound for Malaysia in 3Q20 as the lockdown was cleared and production caught up with the backlog and pent-up demand.
“However, the growth rebound was interrupted by the renewed spike in infections which had led to a tightening movement curb and weaker growth expectation,” she told reporters at an online briefing on Malaysia’s economic outlook yesterday.
She said the country’s high-frequency indicators such as export volume, industrial production and government spending suggest that the targeted lockdowns in January and February this year continued to dampen the economy.
However, she said the growth momentum has become visible in March, in line with the easing of the Movement Control Orders.
On the pandemic effect on the domestic banking sector, del Rosario said non-performing loans (NPLs) are expected to rise in the later part of 2021 once the targeted repayment assistance schemes offered by lenders expires.
“We see loan impairment has generally remained throughout the pandemic at 1.6% of the total loan or 1% of the net provision, and this is partly due to relief measures such as targeted repayment, as well as the loan moratorium last year.
“We do recognise that NPLs could rise in 2H21 once the targeted repayment assistance scheme ends,” she said.
Meanwhile, Malaysia’s monetary policy should be on an easing bias as uncertainty continues to cloud the growth outlook.
“Despite the recent weakening in the recovery momentum, the current low policy rate remains accommodative and should be given more time to be transmitted fully to the real economy.
“But with risks to the outlook tilted to the downside, it would be appropriate to maintain an easing bias to ensure monetary conditions remain supportive in the event of a sharper weakening in economic activity.
“The low interest-rate environment calls for vigilance against a potential build-up of financial imbalances,” she added.
The government has introduced a response package to the pandemic, which expanded from RM20 billion in early 2020 to RM340 billion, or over 22% of the country’s GDP by March 2021 as the economic impact of the pandemic mounted.
The fiscal burden, which accounts for about 20% of the total package, mainly comprises cash transfers to vulnerable households and wage subsidies to small and medium enterprises.
AMRO chief economist Dr Hoe Ee Khor said a full recovery for the Malaysian economy will be seen next year with a 6.2% projection in GDP growth, a delay from the second half of 2021 (2H21) as projected by financial houses.
“Bank Negara Malaysia’s projection of the GDP is based on more positive fundamentals than what we have and would be expecting similarly if not for the latest wave of infections.
“We now expect the economy to catch up in the early part of next year rather than in 2H21. But it still could be a surprise depending on the economic performance and how quickly the vaccination rate could proceed from here,” he said.
Source: themalaysianreserve.com