The 1Q21 GDP showed a much smaller contraction of 0.5% y/y, a marked improvement over -3.4% y/y in 4Q20. However, the recovery appeared to be lopsided, primarily supported by trade due to an upswing in the global semiconductor cycle as well as the concurrent chip shortage around the world. Domestic demand recovery continued to be weak. Both private consumption and investment remained the main drags on GDP growth.

We have lowered our 2021 GDP outlook after having reduced the 2Q21 GDP projection. Although growth will be supported by the low base of -17.1% y/y in 2Q20 GDP, trade primarily from global semiconductor upswing and primary related activities, firm commodity prices and domestic activities from the stimulus measures, the resurgence of rising Covid cases and the lack of clarity and transparency of using HIDE would weigh on the potential outlook. A combination of HIDE and MCO 3.0 risks raising the levels of insolvency or winding-up of businesses. Besides, those under the B40 group and lower end of M40 would be vulnerable.

On that note, we have lowered our 2Q21 GDP projection to around 9%–12%. Hence, we have reduced our 2021 GDP outlook by 0.5% to 5.5% (base case) while our upside has been slashed by 1.0% to 6.0%. Our downside to growth has also been revised to 4.5% from previously 5.0%.

• The 1Q21 GDP showed a much smaller contraction of 0.5% y/y is a marked improvement over the -3.4% y/y in 4Q20. However, the recovery appeared to be lopsided, primarily supported by trade due to an upswing in the global semiconductor cycle as well as the concurrent chip shortage around the world. Domestic demand recovery continued to be weak. Both private consumption and investment remained the main drags on GDP growth.

• What blew away between our +0.7% y/y projection for 1Q21 GDP and the official announcement of -0.5% y/y primarily came from domestic demand, especially private expenditure and net exports where with the variance of overestimation by 0.4% and 0.3% respectively. Also, there was a difference of RM500 million on the inventory level.

• The challenge will now be in 2Q21. The initial projection for 2Q21 GDP is expected to be around 16%–8% y/y. Growth will be supported by the low base of -17.1% y/y in 2Q20 GDP, trade primarily from global semiconductor upswing and primary related activities, firm commodity prices and domestic activities from the stimulus measures.

• However, our initial projection of around 16%–18% in 2Q21 will have to be downgraded. The resurgence of rising Covid cases and restrictive measures now pose more downside risk to growth. More so with the lack of clarity and transparency over the use of the Hotspot Identification for Dynamic Engagement (HIDE) system starting 7 May.

• The HIDE list tracks visitors based on the MySejahtera app. While the list would enable the owners of the premises and the public to take appropriate action, it has caused confusion among the public and businesses especially the SMEs. Even if a visitor is found to be high-risk and rejected by the business owner from entering the outlet, the person would be listed to have visited the outlet.

• And businesses listed in HIDE will need to clean and sanitise. It will certainly impact them from the negative publicity and may take longer than expected to recover. There is a need for clarity and transparency. Those listed on the HIDE system need not necessarily mean that their business premises face higher risk of having an infection than others.

• Added with MCO 3.0 and lack of clarity over HIDE, the risk of more businesses falling into insolvency or winding up could not be ruled out. It will also add pressure on household income and employment, especially those in the B40 group and to some degree the lower end of M40.

• On that note, we have lowered our 2Q21 GDP projection to around 9%–12%. Hence, we have reduced our 2021 GDP outlook by 0.5% to 5.5% (base case) while our upside has been slashed by 1.0% to 6.0%. Our downside to growth has also been revised to 4.5% from 5.0% previously.

Source: AmInvest Research - 12 May 2021