The domestic economy is facing further headwinds in the first quarter of 2021 with the imposition of the MCO 2.0. — Bernama photo
KUCHING: Based on the newly released industrial production and services statistics, Malaysia’s economy is poised to reverse course and fall into a deeper decline in the final quarter of 2020 (4Q20).
RAM Ratings Services Bhd (RAM) estimated Malaysia’s gross domestic product (GDP) to contract by 2.8 per cent in 4Q20 amidst restrictions imposed under the Conditional Movement Control Order (CMCO).
In its statement, the credit rating agency said this will be the third consecutive quarter of contraction in 2020, leading to a 5.4 per cent contraction for the full year.
The actual 4Q20 and full-year 2020 GDP data will be released today (February 11).
RAM said the contraction in 4Q20 is expected to be slightly more pronounced than the preceding quarter, underscored by various supportive policies, and as most sectors continued to operate during the CMCO.
“We expect the manufacturing sector to be the main growth driver in Q4 2020, with a 3.2 per cent expansion. The sector’s capacity, as indicated by the Industrial Production Index, remained fairly stable during the quarter,” it said in its statement.
Nonetheless, the agency expects all other sectors to post negative growth, with retail sales, one of the hardest-hit sectors, saw its growth rate deteriorating to minus 2.9 per cent in 4Q20.
RAM Ratings said the domestic economy is facing further headwinds in the first quarter of 2021 with the imposition of the Movement Control Order (MCO) 2.0.
“With MCO 2.0 now extended until Feb 18, we have revised our full-year GDP forecast from 5.8 per cent to 5.5 per cent.
“Every additional day of MCO extension is estimated to trim 0.04 percentage points, or about RM500 million to RM600 million, off economic growth this year,” it added.
Echoing this sentiment were UOB senior economist Julia Goh and economist Loke Siew Ting, who believed that Malaysia’s economy is poised to reverse course and fallinto a deeper decline of 3.8 per cent y-o-y in 4Q20.
“This will bring full-year real GDP contraction to 5.7 per cent in 2020, based our estimates,” they said in a note.
It further commented that 2021 kicked off with more domestic challenges for Malaysia as tighter containment measures were introduced and a state of emergency was announced as part of wider efforts to contain the COVID-19 pandemic.
“The negative impact is moderated by allowing more economic sectors to open subject to strict operating measures,” the UOB team added. “The growth trajectory is expected to improve from 2Q21 onwards, aided by a low base effect and further improvement in the global economy.
“The vaccination program that will begin in early Mar alongside supportive fiscal and monetary measures will also help lift sentiment.”
The government has on January 18 unveiled additional measures worth RM15 billion under the Permai assistance package to sustain the economic recovery. This package will be financed through government funds reallocated from the initial RM322.5 billion budget expenditure for 2021.
In addition, Bank Negara Malaysia (BNM) last week announced that the central bank will increase the allocation for the Targeted Relief and Recovery Facility by another RM2 billion to a total of RM4 billion that will be available until December 31, 2021 or until it is fully utilitised, whichever is earlier.
An economic boost will also come in the form of the National Covid-19 Immunisation Programme which will be implemented through three phases over a 12-month timespan. The first phase is expected to kick start in early March, involving half a million vaccines for frontline workers.
“Hence, we maintain our 2021 GDP growth target at 5.0 per cent.”
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