Economy Set To Be Humming In 2H Of This Year

Lee says growth would hinge on the government's ability to contain the virus, control the pace of vaccination and the pace it takes towards moving to phases 2, 3 and 4 of the NRP

Economy Set To Be Humming In 2H Of This Year
Economic activities would jumpstart in the second half of the year - Photo by unsplash.com

The Malaysian economy is expected to turn the corner in the second half of this year with most economists predicting a growth rate between 4% to 4.5% this year, adding that the worst is over.

They attribute this to the increased rollout in vaccination efforts and better global economic prospects albeit the different pace of vaccination in different countries.

Senior fellow at the Malaysian Institute of Economic Research, Dr Shankaran Nambiar said the economy should easily achieve a growth rate of 4.5% for the year, with unemployment easing and fears of job loss diminishing, adding that the unemployment rate will be 4.3% for the whole year.

“With the rapid rollout in vaccinations, we can expect the economy to perform much better in the second half of 2021, ” he added

An economist in a bank-based broking house said that there appears to be a strong correlation between the vaccination rate and the restrictions on business, with more factories opening up and manufacturing regaining its activity.

Nambiar agrees, and adds that the E&E sector faces a backlog in production, but expects the wholesale and retail sectors to regain activity.

Executive director of the Socio-Economic Research Centre (SERC), Lee Heng Guie, maintains that Malaysia’s Gross Domestic Product (GDP) estimates at 4% but adds that it would hinge on the government’s ability to contain the virus, control the pace of vaccination and the pace it takes towards moving to phases 2, 3 and 4 of the National Recovery Plan for the reopening of more economic and social sectors.

He adds that restoring consumer spending will be supported by the progress of vaccination and the containment of the spread of the virus.

On concerns for the recovery phase of the Malaysian economy, he said that continued cash aid and loan moratoriums will help temporary cash flow relief but a weak recovery in the labour market would affect consumer spending.

He said that  worsening pandemic conditions and persistent movement restrictions have had a long-lasting impact on businesses and also dented the already impaired balance sheets of the underserved as well as vulnerable, low and middle-income households.

Still, adds Dr Nambiar, consumer sentiments which were in the doldrums in the first half will pick up, driving the economy forward.

He said that the economy should  easily be able to reach a growth rate of 4.5% for the year and an unemployment rate of 4.3% for the whole year.

Industry observers have also said that the health crisis and the resultant economic crisis are not the only problems besieging the country but the lingering political uncertainty also remains a drag on investors’ confidence.

A notable economist who used to be in the civil service says that uncertainty keeps investors away adding that “political uncertainty” is certainly a “put off” as investors are not starved with options with neighbouring countries intensifying efforts to attract investors.

Malaysia,  he adds,  which already has structural issues such as a shortage of skilled workers, cannot afford to have political uncertainty as that would not bode well in the long term.

On inflationary pressures affecting the economy, SERC’s Lee said that cost-push inflation would be calling the shots amidst the still mending domestic demand.

He said that the spike in headline consumer price index, CPI, in the second quarter from a depressed base in 2020 will be normalising in the second half of 2021.

He said that the high production price index including the rising cost of raw materials may pass down in the form of higher consumer price inflation.

Lee said that the overall headline inflation is estimated to increase by 3% to  4% in 2021 (-1.2 % in 2020).

In a recent interview with Bloomberg TV, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz signaled that economic expansion may be around 4% this year due to movement restrictions throughout  the pandemic. 

He said the government would revise the economic growth projection for this year, currently at 6% to 7.5%, by this month.

As for the country’s export growth this year, the renewed lockdown in June and July with a 60% manpower capacity for the export-oriented industries, manufacturing , and plantation sectors would hamper the delivery of export shipments, he said. It may result in the cancellation of future orders as buyers are concerned whether the orders could be fulfilled without interruption.

Amid a divergent recovery between advanced and regional economies, he said exports are expected to grow by 15.8%, with a stronger first half, estimated at 26.7% year-on-year (y-o-y) before slowing to about 6.6% y-o-y in the second of the year, as the low base effect dissipates.

He said the global demand for electronics would be sustained by the increase in digitalisation, data solutions, and applications, as well as 5G development.

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