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MARC says 2021 investments unlikely to return to pre-pandemic level

KUALA LUMPUR (Feb 24): Malaysian Rating Corp Bhd (MARC), which had recently lowered its 2021 real gross domestic product (GDP) growth projection in Malaysia to 5.6%, said investments in 2021 are unlikely to return to the pre-pandemic level although a relatively sharp bounce back in growth is expected.

Uncertainties surrounding the Covid-19 pandemic as well as political developments will hamper investment decisions as firms need to reassess the necessity for further investments, according to a report released by the rating agency today.

Additionally, it opined that the recovery would take longer than anticipated as the unemployment rate has risen to a level not seen in almost three decades. MARC expects the unemployment rate of the country to remain elevated at 4% in 2021, against 4.5% in 2020.

The gradual increase in global oil prices will trigger a higher inflation rate in the coming months, said MARC.

“We anticipate all expenditure components of GDP to rebound but the magnitude would inevitably be dependent on how the pandemic pans out worldwide. Private consumption will remain the key driver of Malaysia’s growth, partly supported by policy stimulus.

“The country’s growth, nevertheless, will be at a slower pace compared to the years before the pandemic given anaemic labour market conditions,” it said.

Still, the rating agency is also hopeful that the movement restrictions will be eased by the second quarter of 2021 when it expects the economy to return to growth.

“The world is still reeling from the effects after a year of battling Covid-19. This has, in turn, prompted the possibility of a double-dip recession. However, the possibility of such a scenario is unlikely judging from past crises, as well as the gradual recovery from supply disruptions,” said MARC.

Meanwhile, MARC said the landscape of trade will look more enticing in 2021 as external demand will start to pick up, noting that the World Trade Organisation (WTO) projected a 7.2% rise in the volume of merchandise trade for 2021, from a 9.2% decline in 2020.

MARC added that Malaysia’s exports will remain driven by the global electronics upturn and the upward movement in commodity prices.

“At a time when there are less imports due to an ongoing crisis, trade surplus and a positive current account balance remain,” said MARC.

 

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