GDP Forecast is Revised Downward for 2021

Bank Negara Malaysia revised (in August) its GDP forecast for 2021 to 3% - 4% from 6% - 7.5%, a 50% reduction in just five months!

Why? The blame is on our Full Movement Control Order (“FMCO”). The FMCO is expected to have a cumulative impact of 5% to 2021 growth, or an average of RM400m – RM500m in daily real output losses.

Headline inflation spiked to 4.1% in 2Q 2021 due to fuel prices while expectations are it will remain between 2.5% - 4% for the year. Unfortunate for savers – with deposit rates at 2% p.a.

For 2Q 2021 (April – June) GDP grew 16.1% year-on-year, but this is due to base effect. If you strip-off the base effect 2Q GDP contracted by 2% from 1Q 2021, reflecting weak domestic and business activities. Export-oriented industries in manufacturing sector have remained resilient. That’s because of global demand in electrical and electronics continued to be on the upswing.

People are battle-fatigued over the pandemic, political tensions and flip-flops on SOPs. That will disrupt recovery and survival of MSMEs. In a ACCCIM survey, respondents see 2H 2021 to be worse off than 1H 2021. Over 65% of respondents see no recovery in 2021 and others see conditions to worsen.

The inflection point is August. If vaccination rate is 40% - 60% of total population, then there is some hope. And if we could see inter-district and even inter-state travel, then a semblance of recovery by year end. A more conservative view is recovery in 2H of 2022 and a full recovery to pre-pandemic (2019) levels by 2023.

The critical points for recovery are:

• Higher vaccination rates;

• More relaxed SOPs;

• Incentives/subsidies for employers to meet payroll, rental and debt obligations; and

• Improved business sentiments with stable political landscape and accommodative economic policies.

Then there will be less white and black flags!

Source: freemalaysiatoday.com

References:

BNM revises down Malaysia GDP forecast range to between 3% and 4% for 2021, Ahmad Naqib Idris, TheEdgeMarkets, August 13, 2021

High 2Q 2021 GDP growth, beware of the base effect! Lee Heng Guie, Focus Malaysia

Better 2Q 2021 envisaged even as growth slowed to a 4-month low in June, Cheah Chor Sooi, Focus Malaysia, August 11, 2021