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Exports contribution to GDP growth depends on vaccination rate – Economists

Exports contribution to GDP growth depends on vaccination rate – Economists

24 May 2021

The signicant role exports can play in Malaysia’s gross domestic product (GDP) growth in 2021 would depend on the pace of vaccination in the country, said economists.

Sunway University Business School economist Professor Dr Yeah Kim Leng said domestic consumption and investment could be strengthened with the relaxation on social and economic activities, only through ramping the vaccination process  to achieve herd immunity by year-end and keeping the daily  infection cases at a manageable level.

“Without consumption and investment activities normalising, it will be difficult for net trade to contribute to a V-shaped recovery,” he said in a recent interview with The Edge Market.

Nevertheless, he said the economy remained on track to achieve GDP growth of 5.5 per cent to 6.5 per cent on the back of rising export performance, barring the COVID-19 pandemic remaining at a heightened level throughout the year.

Meanwhile, OCBC Bank economist Wellian Wiranto said that the bank underestimated the growth momentum of the economy in the first quarter of 2021 (Q1 2021) although the degree of economic contraction would be lower than the 3.4 per cent year-on-year (y-o-y) shrinkage seen in the fourth quarter of 2020.

“Rather than contracting at 1.9 per cent y-o-y, first-quarter GDP growth came in at -0.5 per cent y-o-y, besting market expectations of -0.9 per cent as well,” he said.

Malaysia recorded a GDP contraction of 0.5 per cent in Q1 2021, a sign of recovery from a decline of 3.4 per cent in the preceding quarter, with improvement seen in all economic sectors.

With tighter standard operation procedures being enforced under the Movement Control Order (MCO) 3.0, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz recently said it could lower GDP growth by 1.0 per cent to about 5.0 to 6.5 per cent for 2021, lower than the 6.0 to 7.5 per cent target forecast by Bank Negara Malaysia earlier.

He also said the vaccination rate has reached 76,000 injections a day and a continuous increase to be seen from July in line with the vaccine supply schedule, as compared to about 30,000 to 40,000 previously.

According to Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid, the COVID-19-related impact on external demand would continue to be disproportionate.

“The shortages in microchips would mean technology-related industries such as semiconductors will be busy fulfilling customers’  orders,” he said, adding the shortages could also mean disruption in economic activities due to insufficient materials to complete the process.

At the same time, he said lockdowns being imposed in many parts of the world would also leave the supply chain vulnerable and disrupted which could cause a lumpy recovery process.

Meanwhile, UOB Malaysia senior economist Julia Goh said the impact from the latest MCO would be greater than the previous MCO due to heightened numbers of infections, and criticality increasing possibilities on tightened and extended restrictions, as well as higher inflation pressures for businesses and households.

However, she added that export growth in April is expected to grow 59 per cent y-o-y as the global demand improves and higher trade flows from ongoing trade diversions and diversification.

Source: Bernama

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