Fitch Slashes Malaysia’s GDP Growth Forecast By 50%

Prior to MCO 2.0, Fitch Solutions forecasted Malaysia’s real GDP for 2021 to be at 10% noting the country’s steady opening of the economy and healthy export numbers. However since then, the rating agency has revised its GDP to 4.9%, a massive slash from the previous figures due to a number of reasons.

This follows the realisation of the downside risks Fitch had pointed out in its comprehensive update on the growth, fiscal and monetary outlooks for Malaysia after the government had implemented lockdown measures to combat the third wave of Covid-19 infections. Expecting a further extension of lockdown measures, the agency is not ruling out further downward revisions to the growth forecast over the coming months

Further illustrating the revision, key points to take note is how the domestic demand outlook being derailed with the lockdown measures which will likely to cause a resurgence in unemployment, and delay any recovery in tourism related sectors. This would in turn result in even more unused capacity and negatively affect the investment outlook. Key source of support will once again be net exports, driven primarily by shrinking imports as demand falls.

Malaysia’s real GDP contracted by 3.4% in Q420, bringing full year growth in 2020 to -5.6%, a significant underperformance compared to a forecast of -4.9% and 4.3% growth in 2019. That Q4 2020 saw a deeper contraction compared to Q3 2020,when real GDP shrank by 2.7%, represents a departure from the more consistent recoveries that has been seen in Asia, including in China, Singapore and Vietnam, where fourth quarter results were better than the third.

Outlook for the rest of the year does not look rosy, Fitch cautions that the situation remains serious even though the
lockdown appears to be having some effect, with daily cases falling from a peak of 5,725 on January 29 to 3,288 on
February 11. In line with the view, the government already announced an extension to the lockdown measures on
February 2, with all states in the country except Sarawak to remain locked down until February 18.

Given the still high caseload, there is no expectation that a complete lifting of the lockdown and a further extension would further dent growth prospects in 2021, affecting especially private consumption and GFCF.

This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company an affiliate of Fitch Ratings Inc. FSG is solely responsible for the content of this report, without any input from Fitch Ratings.

LEAVE A REPLY

Please enter your comment!
Please enter your name here