The Latest: Malaysia’s daily Covid-19 cases have slipped from a peak of 24,599 on August 26 to just 6,210 on October 21, and a downtrend appears to be entrenched.
With the reopening of Langkawi, and local media report that international travel rules were relaxed with effect from October 11, Fitch finds these as positive developments and has revised upward its 2021 real GDP growth forecast from 0.0% to 1.5%. The forecast for 2022 remains at 5.5% for now, with the economy likely to post a stronger
recovery thanks to higher vaccination rates
Fitch previous forecasts assumed that the Covid-19 restriction would not be removed until daily cases fell below 4,000, but the improving situation means that the government will probably be able to honour its pledge to reopen the economy fully by the end of October. Removing domestic restrictions will provide a strong boost to the retail and services sector, due to higher food traffic in malls and other retail and F&B venues over the remainder of the year. We have raised our forecast for private consumption to 0.5% from -2.0% previously due to two main drivers.
First, google mobility data has shown a sharp improvement in foot traffic to retail outlets parks, and workplaces as restrictions have been gradually lifted, as the chart below indicates. This means that Q321 is likely to have performed better in terms of private consumption than we previously expected and the revision reflects this. Second, Q421 is likely to perform better still after the economy is fully re-opened.
This revision is a preliminary adjustment and it had said that it will wait for a clearer indication as to the health of the economy with the release of Q321 real GDP growth results on November 12. However, Fitch cautions that downside risks remain, particularly the possibility that the removal of restrictions will result in a surge in infections that forces the government to pause re-opening plans.
In neighbouring Singapore, the government was forced to re-implement tighter restrictions in late September. If the Malaysian authorities are forced to abandon their reopening plan, this would delay the economic recovery into 2022.
