Malaysia’s economy is more resilient than what the market had anticipated with its better-than-expected 2Q21 GDP growth and analysts observed that despite lockdown measures, there are early signs of recovery evident in 3Q. — Bernama photo
KUCHING: Malaysia’s economy is more resilient than what the market had anticipated with its better-than-expected second quarter of 2021 (2Q21) gross domestic product (GDP) growth and analysts observed that despite lockdown measures, there are early signs of recovery evident in 3Q.
In a report, RHB Bank Bhd’s Market Research head and group chief economist Dr Sailesh K Jha commented: “In our view, the economy could have bottomed out in July and early signs of recovery are evident as of the first week of August in the industrial and consumer sectors.”
The better-than-expected 2Q21 GDP also confirms that the economy was more resilient than what the market had anticipated.
“This prompts us to maintain our 2021 5.4 per cent y-o-y growth trajectory. From our perspective, consumption turned out to be weaker than expected, however, these are offset by a larger contribution from government spending, net exports and inventories.
“Onwards, we expect further economic improvement in July data which will garner pace in August as reopening commences. This should help with the 3Q21 GDP rebound,” he added.
So far, the government has relaxed restrictions in eight states that recorded low infection rates.
“The ease of restrictions are likely to be expanded into more states over the next few weeks. Key to this reopening was the change in the thresholds under the National Recovery Plan (NRP) which turned to focus on the severe cases instead of daily infection rates.
“Under the new criteria, more states, including the Klang Valley should be qualified to shift into Phase 2 fairly soon and at the latest by mid-September if not earlier.
“On the ground, high frequency data for the Malaysian economy were already pointing towards a gradual recovery. Google Mobility, which tracks well with retail sales, bottomed out in June as Government eased restrictions including raising working capacity from 60 per cent to 80 per cent in some states. The index are expected gain traction in August as Phase 2 requirements in selected locations allow for dine-ins and inter-district travel.
“We also expect pent-up demand to also contribute towards a higher economic momentum over the next several months.”
On the investment front, RHB believe greater pickup would come from the private side. Investment in machinery & equipment is expected to trend higher amid rising imports of capital goods while businesses are likely to invest in expansions given that capacity utilisation, currently at 85 per cent, is among the highest ever recorded.
For residential investments, there could be a pickup in this segment as the government had recently allowed the housing development sector to operate.
“On the external side, disruptions to the global supply chain are likely to be sporadic but temporary. Despite the disruptions, exports continued to trend higher and are expected to do so as more economies reopen globally.”
“In terms of fiscal space, government’s plan to increase the statutory debt-to-GDP ratio to 65 per cent from 60 per cent currently should free up roughly RM70 billion.
“This would allow for further fiscal support as the Government irons out a plan for recovery under Phase 3 and Phase 4 of the NRP. Things to look out for the next several days are the revised 2021 Budget by the Ministry of Finance,” Sailesh highlighted.
In other data releases, the 2Q21 current account balance printed 3.6 per cent of GDP versus the Bloomberg consensus estimate of 2.8 per cent and the 1Q21 print of 3.3 per cent.
“The goods surplus continued to support the current account at RM25.2 billion. Meanwhile, the services trade deficit remained wide amid a lack of tourist arrivals.
“On the financial account, we observed outflow of RM7 billion versus RM16 billion inflow in 1Q21, amid the decline in ‘others’ category (rade credits, loans and others),” RHB noted.
All in, RHB maintained its 2021 current account balance forecast to three per cent of GDP and its 5.4 per cent y-o-y 2021 GDP growth forecast.
“Commodity prices are likely to remain elevated in 2H21. In addition, support for the current account balance in 2H21 is also likely to also come from strong global demand for goods especially semiconductors amid the global reopening.
“On the other hand, the pickup in the domestic economy will likely cause higher import demand and will partially offset strong export growth,” Sailesh remarked.