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Fitch Solutions revises upwards 2021 real GDP growth forecast for Malaysia to 1.5% from 0% as Covid-19 situation improves

KUALA LUMPUR (Oct 25): Fitch Solutions Country Risk and Industry Research on Monday (Oct 25) said it had revised upwards its 2021 real gross domestic product (GDP) growth forecast for Malaysia to 1.5% from 0% as the Covid-19 situation improves.

Fitch Solutions — a unit of Fitch Group — said in a note that Malaysia’s daily Covid-19 cases slipped from a peak of 24,599 on Aug 26 to just 6,210 on Oct 21, and a downtrend appears to be entrenched.

It added that the government had already reopened the tourist resort of Langkawi, and international travel rules were relaxed with effect from Oct 11.

"In view of these positive developments, we have revised upwards our real GDP growth forecast for this year. Our forecast for 2022 remains at 5.5% for now, with the economy likely to post a stronger recovery thanks to higher vaccination rates,” it said.

Fitch Solutions' previous forecasts assumed that Covid-19 restrictions would not be removed until daily cases fall below 4,000, but noted that the improving situation means that the government will probably be able to honour its pledge to reopen the economy fully by the end of October.

“Removing domestic restrictions will provide a strong boost to the retail and services sector due to higher food traffic in malls and other retail and food and beverage venues over the remainder of the year,” it said.

Fitch Solutions also raised its forecast for Malaysia’s private consumption to 0.5% from -2% previously due to two main drivers.

“Firstly, Google mobility data has shown a sharp improvement in foot traffic in retail outlets parks and workplaces as restrictions have been gradually lifted. This means that 3Q21 (the third quarter of 2021) is likely to have performed better in terms of private consumption than we previously expected and the revision reflects this. Secondly, 4Q21 is likely to perform better still after the economy is fully reopened,” it said.

“This revision is a preliminary adjustment and we will await a clearer indication as to the health of the economy with the release of the third-quarter real GDP growth results on Nov 12,” it added.

That said, Fitch Solutions continued to caution that downside risks remain, particularly the possibility that the removal of restrictions would result in a surge in infections that forces the government to pause its reopening plans.

“In neighbouring Singapore, for example, the government was forced to reimplement tighter restrictions in late September.

“If the Malaysian authorities are forced to abandon their reopening plans, this will delay the economic recovery into 2022,” Fitch Solutions added.

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