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Think tank maintains 4% growth forecast for 2021

Ragananthini Vethasalam3 years ago22nd Jul 2021News
Concertina wire emco 220721
A think tank predicts growth for the economy this year despite the lockdowns. – The Malaysian Insight file pic, July 22, 2021.
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THE Socio-Economic Research Centre maintained its 4% full-year GDP growth projection for Malaysia after taking into account the effects of the latest lockdown.

Executive director Lee Heng Guie said the forecast which was made after Budget 2021 would be subject to downside risk factors.

Lee said the third movement control order enforced in June would have an impact on the second-quarter performance, which performance was crucial to set the way forward.

He predicted Q2 to show double-digit, albeit weaker than expected growth.

“(As for Malaysia’s) recovery path… I continue to expect positive growth for this year – a full year (GDP growth of) 4% but this is still subject to downside risks,” he said at the think tank’s quarterly economic briefing held online.

He said the high number of Covid-19 cases remained a challenge as it warranted stricter containment measures even as the vaccination rate picked up.

The longer the stringent containment measures dragged on, he said the bigger and deeper the scars they would leave on the domestic economic sectors, particularly small- and medium-size  enterprises which would suffer the most.

Lee said uneven growth in economic activities was likely to continue. Export-oriented industries would continue to fare well while the domestic sector such as retail, aviation and some transport sub-sectors would take a longer time to recover.

Growth would be more positive in the fourth quarter from “pent up demand” from the second quarter which could spill over to the first half of next year, he said.

He said this would also depend on the country’s progress toward phases 3 and 4 of the national recovery plan.

On a positive note, he said the vaccination rate had picked up.

Lee expects 40% of the population to be fully immunised by end of August and 60% by September.

He said higher vaccination coverage will release pent-up demand and enable households to alter their balance sheet and some sectors to gradually re-open.

“Hopefully towards  the end of the fourth quarter we can see some inter-district and inter-state and selected green bubble International travel,” he said.

He said based on his meetings with Finance Minister Tengku Zafrul Abdul Aziz, Minister in Prime Minister’s Department Mustapa Mohamed with other stakeholders yesterday, it was obvious Putrajaya was keen on moving forward to transition the people to learn to live with the coronavirus.

Lee said he anticipated headline inflation to increase 3-4% from -1.2% last year, adding that cost push inflation would call the shots this year despite domestic demand being on the mend.

Exports are expected to grow 15.8%, with stronger first half (about 26.7% year-on-year) before slowing to 6.6% in second half 2021.

Continued cash aid and loan repayment moratorium would provide temporary cash flow relief and aid consumer spending but a weak recovery in the labour market would affect spending, he said.

Lingering political uncertainty would dent investor confidence, he said.

Meanwhile, the prolonged impact of the pandemic on businesses and households was expected to be cushioned by appropriate and accommodative monetary policy, supported by fiscal and financial relief measures such as loan repayment moratorium, EPF withdrawal, and cash assistance. – July 22, 2021.

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