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RAM: Malaysia’s GDP to contract 2.1 pct in 1Q21

RAM cautioned that the spike in Covid-19 infections and the reimposition of social restrictions (MCO 3.0) in many key economic centres represent major downside risks to Malaysia’s GDP growth. — Bernama photo

KUCHING: RAM estimates Malaysia’s gross domestic product (GDP) to have contracted 2.1 per cent in the first quarter of 2021 (1Q21) amid Movement Control Order (MCO) 2.0.

Nonetheless, this contraction – the fourth consecutive quarter of decline – is expected to be slightly less pronounced than the preceding quarters’, which saw declines of 3.4 per cent in 4Q20 and 2.7 per cent in 3Q20.

This is because most economic activities had been allowed to continue despite social restrictions, while strong external demand boosted industrial output during the quarter.

The government’s various income-supporting policies are also seen to have somewhat mitigated the fall in consumption.

RAM envisaged the manufacturing sector as the main growth driver in 1Q21, with a 6.8 per cent expansion, compared to three per cent in 4Q20.

This sector’s operational capacity – as indicated by the Industrial Production Index – continued to climb during the quarter.

Buoyed by the recovery of external demand, overall exports surged 31 per cent in March, compared to an increase of 17.6 per cent in February.

Moreover, data indicate that the deterioration of retail trade, one of the hardest hit sectors, was much less severe than during MCO 1.0 in April 2020.

This had helped to contain the downward pressure on growth in 1Q21.

Looking ahead, RAM expected year on year (y-o-y) economic growth to rebound in 2Q21, particularly from the preceding year’s low-base effects.

That said, the spike in Covid-19 infections and the reimposition of social restrictions (MCO 3.0) in many key economic centres represent major downside risks to Malaysia’s GDP growth, as they suppress consumer confidence and household spending.

“We are maintaining our 2021 GDP growth projection of five per cent for now given the slew of uncertainties such as the uptrend in Covid-19 cases, the pace of the national vaccine programme, the emergence of new virus strains and still-weak labour market conditions,” RAM said.

All said, Malaysia’s success in controlling the spread of the Covid-19 in 2Q21 while upholding the encouraging momentum in the first quarter may shore up economic growth this year.






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