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Malaysia’s GDP expected to improve in Q3, but at slower pace

Malaysia’s GDP expected to improve in Q3, but at slower pace

10 Nov 2020

Malaysia’s gross domestic product (GDP) for the third quarter is projected to improve but remain in negative territory, with the rate of economic recovery likely to recede as the resurgence of Covid-19 infections and conditional movement control order (CMCO) in wider parts of the country weigh on sentiment and rebound pace in fourth-quarter 2020 (4Q20).

In a note, UOB Research said it is estimating GDP at a narrower contraction of -2.6% against -17.1% year on year in 2Q20.

The improvement will be broad-based though the pace is likely to vary across sectors. Services, construction, and mining & quarrying sectors are likely to record further declines albeit less acute, it said.

“Manufacturing activity is expected to improve following relaxation of Covid-19 containment measures since early May and ramp-up of production to meet backlog of orders. Agriculture sector is expected to stage a mild positive gain, thanks to higher CPO output,” it added.

UOB Research also said on the aggregate demand front, overall GDP in 3Q20 is expected to be primarily supported by the continuation of government spending, positive net trade contribution, and inventory replenishment

“The drag from private consumption is expected to narrow significantly in 3Q20 after it plunged by -18.5% yoy in 2Q20, aided by government’s cash aids, withdrawal from EPF’s Account 2 and reduction in employees’ contributions to EPF, blanket loan moratorium, and discount on electricity bills amid still high unemployment.

‘Total investment is likely to remain lethargic on account of cautious and uncertain outlook, weaker balance sheets, as well as slow implementation of infrastructure projects amid tight standard operating procedures (SOPs) and foreign worker supply issues.”

For 2021, the research house said it expects real GDP to rebound by 5.5%, with upside surprises coming from higher government spending amid the large expenditure outlays in Budget 2021 and wider distribution of vaccines that could give a decent lift to GDP from 2Q21 onwards.

Similarly, CGS CIMB Research said it projects GDP contracted by 3.5% yoy in 3Q20, confirming a technical recession, as key sectors contracted except manufacturing, finance and ICT.

“Recent data suggest Malaysia’s GDP likely declined in 3Q20, pointing to sequential gains from the restart of economic activities after the lockdown-inflicted 17.1% contraction in 2Q20, but still lagging the pre-Covid-19 momentum. Hopes for further improvements in 4Q20 were set back by the reintroduction and extension of targeted CMCO orders from 4 Oct until the most recent deadline of Dec 9,” it said.

It is projecting GDP to contract by 1% in 4Q20, resulting in a lowered full-year GDP forecast from -4.4% to -5%, due to the successive extensions in the CMCO 2.0 timespan and geographical scope.

It maintains its expectations of a 7.5% GDP rebound in 2021, driven by supportive fiscal and monetary policy as well as an assumption of normalising economic activities and easing social distancing requirements by mid-2021.

Manufacturing activity is expected to improve following relaxation of Covid-19 containment measures since early May and ramp-up of production to meet backlog of orders.

Source: The Sun Daily Posted on : 10 November 2020

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