Malaysia: Muted Growth or No Growth?

Malaysia slashed its growth forecast to 3%-4% for 2021 from 6%-7%. Fitch Solutions has revised its real GDP forecast to 0% for 2021 from 4.9% previously.

All of the above revisions were due to 2Q2021 real GDP growth registering -2.0% quarter-on-quarter (qoq). On a year-on-year it was an impressive 16.1% but that’s because in the same period in 2020 was a total lockdown. This is nothing more than a ‘base year’ effect!

From the one perspective, all economic segments are stagnant save for logistics, glove manufacturing, pharmaceuticals or delivery companies like Food Panda or Grab. Further downside risk must include the political situation. A new PM propped-up by GPS gives him only a three vote majority (in parliament). It could be more of the same or ‘Here we go again’ by Demi Lovato? And the inflation numbers could get worse before getting better.

Many ask if the 12th Malaysia Plan and the Budget 2022 will be delayed. The short answer is: No, if you let civil servants do the job! The NRP is hit by execution delays and Ismail Sabri has the inside knowledge to move this forward quickly. But the poor man has limitations – he may not get the best experts to help because of his party or personal preferences.

Some expect Q4 will be the beginning of the recovery. But that assumes SMEs are still around. Previous estimates suggest 50% are culled by October and foreign investors are looking to exit with the uncertain future. So it is for the PM to stem the outflow and make that difference.

The ringgit faces weakening risks to 4.40 to the U.S. dollar, according to DBS Group. In 2015, it fell to 4.40 with the 1MDB scandal. U.S. quantitative easing could taper by November or December. That’s bad news for the ringgit.

If lockdowns are abandoned, an optimistic growth of 2% is conceivable, according to Centre for Market Research. To make Malaysia attractive again for FDI, review red-tape, re-hash MM2H, clarify longer term strategy, reduce political shenanigans, implement reforms, enforce judiciary decisions, restore confidence for private sector investments to flourish and accept contribution of all Malaysians. Is that too much to ask?

References:

Muted growth seen for the economy, Ganeshwaran Kana, Starbizweek, 21 August 2021

Fitch Solutions: Malaysian economy to remain stagnant from 2020, Cheah Chor Soo, Focus Malaysia, 16 August 2021

Ringgit faces weakening risks to 4.40 against U.S. dollar , DBS, Cheryl Poo, theedgemarkets.com, 13 August 2021