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Some economists still holding out hope for above 4% full-year GDP growth

KUALA LUMPUR (Aug 16): Despite Bank Negara Malaysia’s (BNM) move to slash growth forecast for 2021 to the 3% to 4% range, some economists are still holding out hope for growth to come in above 4% this year.

In a report, Maybank Investment Bank Research has kept its full-year growth target at 4.2% for now, given the “fluid 2H2021 outlook on containment measures, politics and GDP”. 

Maybank IB Research said the current vaccination pace lifts the prospects of broader, if not full, economic reopening and lifting of restrictions in the second quarter of 2021 (2Q2021). 

The research house pointed out that while the below 50 points of Manufacturing PMI in July suggest that the manufacturing sector will continue to be subdued in early 3Q2021, there has been gradual easing from Phase 2 of the National Recovery Plan (NRP) to Phase 3 in nine states, which account for 37% of the national GDP, and the relaxation of restrictions for fully vaccinated individuals, despite risk of rolling back containment measures amid Covid-19 infection from the Delta variant. 

The Maybank IB Research report which was released on Aug 14, before the political commotion over the weekend, also opined that one wildcard is the political situation in the country, ahead of the Parliament sessions in September to October 2021 as the no-confidence vote looms, the tabling of the Budget 2022 and the possible raising of government debt ceiling. 

Last Friday (Aug 13), Prime Minister Tan Sri Muhyiddin Yassin proposed political and parliamentary reforms for bipartisan “confidence and supply” support until the next general election proposed to take place in July 2022.  He also, for the first time, admitted that he doesn’t have the majority vote. 

Since then, rumours have been swirling that he is set to resign today as he is slated to have an audience with the King as well as attend a special Cabinet meeting.

Meanwhile, MIDF Research has also maintained its 2021 GDP forecast at 4.6%, but cautioned about the downside risk to its growth outlook from a prolonged lockdown situation as well as a potential worsening of the Covid-19 infections from the Delta variant.  

The research house takes the view that the prolonged lockdown would increase the risk of 3Q2021 returning to a contraction as domestic consumption and business activities constraints deepen. 

Nevertheless, like most, MIDF is optimistic that the fast vaccination rate will relieve pressure on the national healthcare system and increase the likelihood of herd immunity by 4Q2021. 

“The easing of restrictions and the potential increase in pent-up demand will support the economy to continue recovering from 4Q2021 and going into 2022. While we expect external demand will continue to support growth, the recent spike in Covid-19 cases in other parts of the world could influence trade outlook at least in the near term,” it said. 

Moody’s Analytics has the highest full-year 2021 GDP forecast among economists, at 4.7%, but also added that with the fluid Covid-19 situation in Malaysia, it is likely that its full-year GDP forecast will undergo a downward revision in September.  

It said its preliminary estimate for 3Q2021 GDP growth reflects a “downwardly revised view of economic conditions”. Earlier, BNM had warned that 3Q2021 will be a trough for the Malaysian economy. 

As some are holding on to their above official forecast GDP numbers, the majority of economists have either kept earlier projections that are in line with the new GDP outlook or revised downward their earlier GDP forecast to the range of 3% to 4%.   

Hong Leong Investment Bank Research’s forecast stands among the lowest at 3.1% growth. 

“While there are some upside from the significant ramp-up in vaccinations, risks to the outlook remain tilted to the downside from continued strain on healthcare facilities. Taking into account the impact of Phase 1 of the NRP that continued in July and mid-August, we downgrade our 2021 GDP forecast to 3.1% y-o-y,” said the research house. 

Notably, on Aug 15, the prime minister announced easing of restrictions in 11 economic sectors in states that are under Phase 1 of the NRP, provided that 50% of the adult population have been vaccinated. 

“While these measures should accord some economic reprieve, the high number of cases and tight ICU hospital utilisation could pose risk to the sustainability of the reopening amid policy continuity risk,” added HLIB Research. 

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