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Vaccination remains key for economic recovery

Vaccination remains key for economic recovery

12 May 2021

Economists believe the rollout of the national vaccination programme will be key to the strength of recovery in the Malaysian economy this year.

Institute for Democracy and Economic Affairs CEO Tricia Yeoh sees Bank Negara Malaysia’s (BNM) GDP prediction growth of 7.5% for 2021 as too optimistic at this stage.

“The GDP outlook for 2Q21 and full year is highly dependent on the success of the National Covid-19 Immunisation Programme.

“As long as a majority of the population remains unvaccinated, we should expect further unpredictabilities with regard to the balancing of management of public health and the economy,” she told The Malaysian Reserve (TMR).

Malaysia recorded a smaller GDP contraction of 0.5% in 1Q21 compared to 3.4% contraction in 4Q20. However, the economy remains on track to achieve its forecast GDP growth of between 6% and 7.5% in 2021, according to BNM.

Despite the vaccination programme, Yeoh said only 30% of the population has registered to get inoculated, and not all of them are showing up for their appointments.

“It will take several years for the majority of the population to be vaccinated at this rate, which increases the likelihood of many more Covid-19 waves. It means lockdown cycles are inevitable for the rest of 2021.”

Yeoh said the state of Emergency — although the government maintained it is administrative — has sent signals to the international community about Malaysia’s political instability or how institutionally sound the country is; despite economic fundamentals are quite strong.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the pandemicled shocks are far more severe compared to what was inflicted by the US subprime crisis, based on the latest GDP performance.

He said 2Q21 GDP could register a decent reading given the low base factor from last year when the economy steeply declined by 17.1%.

“While we may see a huge turnaround in the 2Q21, the underlying trend is still tepid, especially when the third Movement Control Order (MCO) is instituted from today  to June 7.

“Nonetheless, we are seeing a good traction coming from abroad as the country has been benefitting from the global economic recovery,” he told TMR.

Moody’s Analytics associate economist Sonia Zhu said conditions will likely stay weak in the coming quarter given the persistence in consumption slump, despite a gradual easing of GDP contractions.

“As a domestic-driven economy, strength in the external sector is insufficient for the economy to rebound completely from its pandemic lows.

“The emergence of a more contagious variant of Covid-19 in Malaysia may complicate the situation more. We should avoid being over-exuberant about the external performance and downplay the weak domestic condition,” she said in a statement yesterday.

“The slow vaccination rate, exacerbated by vaccine hesitancy, casts doubt on the central government’s ability to reach the herd immunity target by the end of 2021, tilting the balance of risks to the downside for the subsequent quarters,” she added.

OCBC Bank (M) Bhd’s economist Wellian Wiranto said the new MCO will not impact export activities much and would only have a more curtailed effect on private consumption, which he expects might grow to 19% in 2Q21.

“Together with the relative uptick in 1Q21’s print, it would thus take our full-year forecast to 6% from 5.4% previously,” he said.

Bursa Malaysia closed lower for the second consecutive day yesterday as the nationwide expansion of the MCO weighed on market sentiment, but cushioned by the 1Q21 GDP performance.

The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) eased by 6.28 points to 1,577.64 yesterday from 1,583.92.

Public Investment Bank Bhd said while the market remained trading oriented with expected volatile swings, the research house has lowered its 2021 year-end FBM KLCI closing target to 1,690 points at 16 times multiple to one-year forward earnings on rising risk premiums.

Its previous FBM KLCI target for end-2021 was at 1,750 points at 16.5 times to one-year forward earnings.

“With the FBM KLCI at 1,675 points when we issued our first half of 2021 outlook and the suggestion that the market was still undervalued from a risk-reward perspective considering the record-low interest-rate environment, the FBM KLCI at 1,583 points yesterday should now be a lot more attractive,” it added.

Source: The Malaysian Reserve