GEORGE TOWN, Aug 16 — Fitch Solutions has warned of a stagnant economy for the rest of 2021 after revising its gross domestic product (GDP) growth forecast for Malaysia in 2021 to zero per cent from 4.9 per cent.
The research unit of Fitch Ratings revised the forecast after the release of real GDP figures for the second quarter of 2021 which contracted by 2 per cent (quarter on quarter or q-o-q) and grew by 16.1 per cent (year on year or y-o-y).
While Malaysia’s real GDP expanded by 16.1 per cent y-o-y in the second quarter of 2021, the true picture of the economy is best reflected by the negative two per cent (q-o-q) growth rate, it said in a statement today.
It attributed the contraction to increasing stringent lockdowns that were implemented in Q2 this year that culminated in a national total lockdown that continued to August 13.
Fitch Solutions pointed out that the Department of Statistics had also noted a GDP contraction of 4.4 per cent y-o-y in June due to the lockdown.
It said real GDP growth figures fell far below the research unit’s previous expectations, thus compounding its view that the third wave of Covid-19 infections will disrupt the country’s economic recovery even more than expected.
“All segments of the economy from an expenditure perspective except government consumption are likely to remain stagnant or even contract slightly from 2020 levels,” Fitch Solutions said in a statement today.
Based on its calculations, the research unit finds that private consumption contracted by 11.5 per cent q-o-q, compared to the five-year average q-o-q growth rate of 2.4 per cent pre-pandemic for the second quarter.
“This demonstrates the severe impact the third wave of infections has had on the key growth engine of the economy — private consumption accounts for around 70 per cent of GDP,” it said.
It also dismissed any prospect of a late economic surge in 2021 due to the vaccination rate of the country where herd immunity might not be achieved before the end of the year.
“We note further downside risks to our forecast given the high level of political risk since the beginning of H2 21 and the risk that the outbreak could still worsen over the coming months, which could further affect the economy’s performance,” it said, referring to the second half of 2021.
The research unit is of the view that the nationwide lockdown is likely to last for most of what remains of the second half of 2021 and that localised lockdowns could even extend into 2022.
“That is because Malaysia is unlikely to achieve herd immunity before the end of the year despite a recent surge in the rate with which it is vaccinating its population,” it said.
It also warned of a possible slowdown in vaccination rate after the surge in June due to a variety of factors including vaccine hesitancy, similar to what happened in other countries such as the United States and Singapore.
Fitch Solutions also warned of a gloomy outlook for domestic demand, namely private consumption and gross fixed capital formation (GFCF).
It revised its forecast for private consumption with a two per cent contraction from a growth of three per cent previously.
Meanwhile, its forecast for GFCF growth was revised to 1.5 per cent from four per cent previously.
“Unemployment is likely to rise over H2 21, and has already started to climb, to 4.8 per cent in June from 4.5 per cent in May, unemployment averaged 3.3 per cent pre-pandemic, according to the Department of Statistics,” it said.
It said the increasing number of infection rates in the country will also set back any plans to reopen to international travel, dashing any prospects of tourism and other related sectors that were beginning to recover in 2021.
“These same factors spell worse prospects for GFCF as well, as businesses are unlikely to have neither the capital, nor the need, amid depressed demand, to build capacity,” it said.
Amid the dim prospects for domestic economic activity, Fitch Solutions said its expectations for net exports will reduce by 0.2 percentage points (pp) from headline growth, from a positive contribution of 1.7pp previously.
It believed that external demand will likely be weaker than previously expected due to the serious outbreaks of Covid-19 in the region including Thailand, Philippines, Vietnam and Indonesia.
“Even China is facing risks of a sharper slowdown in H221 due to a surge in infections caused by the Delta variant,” it said.
It added that imports will continue to be supported, despite a dismal demand outlook, by the demand for medical supplies to cope with the pandemic as well as high prices of refined fuels that Malaysia remains a net importer of.
It said the domestic demand will mostly be driven by government consumption where it forecasts a government consumption growth of seven per cent, up from 4.5 per cent previously.
It attributed the growth to the increased stimulus packages implemented by the government that was worth a total of RM200 billion since the beginning of 2021.
“The revision accounted for the fact that the stimulus packages are also made up of loan moratoriums undertaken by banks and allowing workers to withdraw pension savings, which are not actual spending by the government,” it said.
It believed further stimulus packages for the second half of this year from the government are unlikely due to the country’s increasing government debt.
It said Malaysia’s total government debt has already exceeded the government’s self-imposed debt limit of 60 per cent of GDP, coming in at 64.6 per cent of GDP at the end of the first quarter of 2021.
“Even if, as we expect, the government raises the debt limit again, the debt limit was already raised from 55 per cent in August 2020, the contracting economy means that this limit will be calculated off a smaller base, reducing the fiscal space such a move would provide,” it said.
https://www.malaymail.com/news/malaysia/2021/08/16/fitch-unit-warns-of-stagnant-economy-for-rest-of-2021-cuts-malaysias-gdp-gr/1997991
Created by savemalaysia | Aug 26, 2024
Created by savemalaysia | Aug 26, 2024
Created by savemalaysia | Aug 26, 2024
Created by savemalaysia | Aug 26, 2024
Created by savemalaysia | Aug 26, 2024
stockfreak
Thanks to katak.
2021-08-16 11:43