Vaccination a key driver to GDP in 2021
KUALA LUMPUR: The speed and efficiency of the Covid-19 vaccination programme in 2021 will determine the country’s gross domestic product (GDP) in the year ahead.
In saying this, the team with Public Investment Bank Bhd (PublicInvest Research) said the rapid Covid-19 vaccination programme will be one of the drivers to pull-up Malaysia’s growth in 2021.
“This will be a precursor for a removal in restrictions and therefore, a recovery in sentiment that could underpin a turnaround in key sectors like services and private investment,” it explained in a GDP update yesterday.
“This is expected to gather in speed in the 2H. The government has procured ample supply of Covid-19 vaccine from various sources which could push a desirable protection for the population by 1Q22 i.e. herd immunity.
“The gradual but certain increase in Covid-19 protection via general immunisation will trigger an easing of containment measures and the opening of economic sectors – a trend that is currently being seen in Europe following the start of their vaccination programme in December.”
PublicInvest Research also said Malaysia’s growth will also be shored-up by the full impact of fiscal aid amid the government’s rolling out of various fiscal stimulus packages worth more than 20 per cent of GDP – or about RM335 billion – over the last one year. This will be further pushed by the biggest ever Development Expenditure (DE) on record, as detailed in the Budget 2021 announcement.
The further relaxation on the withdrawal of i-Sinar under the Employee Provident Fund (EPF) will be the added push for growth amid a large spillover effect for private consumption.
This will be further boosted by an extended period of low interest rate environment which is projected to remain steady in the 1H.
“The combination of pro-growth measures and initiatives will push 2021 GDP to jump by 6.2 per cent year on year, a significant turnaround against minus 5.6 per cent seen in 2020,” PublicInvest Research added.
“Downside risks may come from resurgence in Covid-19 infections and the hiccups in the Covid-19 vaccination programme as it could be affected, among others, by a delay in receiving the
This will be a precursor for a removal in restrictions and therefore, a recovery in sentiment that could underpin a turnaround in key sectors like services and private investment. PublicInvest Research
supply, poor execution in the vaccination programme, a slow take up rate given the fear over side effects.
“The discovery of a new variant of Covid-19 virus is also a going concern. Sceptics could also adopt a wait-and-see attitude amid the concern over the efficacy of the vaccines which have yet to be proven fully robust.”
Given the weaker growth momentum in the last quarter of 2020 (4Q20), Hong Leong Investment Bank Bhd (HLIB Research) expect to see continued weaknesses in 1Q21 with the re-imposition of the movement control order (MCO 2.0).
Nevertheless, its impact to economic activity will be less severe than MCO 1.0 with more sectors given the green light to operate with higher capacities and longer operating hours.
“Overall, while there continues to be considerable downside risks to the growth outlook, there could be upside risks as well, stemming from sooner-than-expected mass vaccine rollout globally and domestically,” HLIB Research opined.
“Hence, we maintain our 2021 GDP forecast at five per cent y-o-y. Bank Negara Malaysia is still projecting a recovery for 2021 and is currently reviewing the official forecast, which will be announced in their Annual Report on March 24, 2021.
“Currently, the Ministry of Finance’s official forecast stands at 6.5 to 7.5 per cent y-o-y. BNM opines 1Q21 is expected to be challenging, as policy measures in place are not expected to fully offset the negative repercussions of MCO 2.0.
“The central bank reiterated its readiness to utilise various policy levers such as the overnight policy rate, statutory reserve requirement, as well as more targeted measures and emphasised the need to complement it with fiscal and supply side policies.”