Economy recovering, but Covid-19 fears persist
KUALA LUMPUR: Based on the trend of Malaysia’s leading index (LI), analysts believe the country remains on track to its economic recovery but the possible resurgence of a widespread Coronavirus Disease 2019 (Covid19) outbreak is still a major cause for concern.
This comes as Malaysia saw 260 new Covid-19 cases yesterday, with 259 local cases recorded.
Investment Bank Bhd’s research team (MIDF Research) in its monthly economic review report pointed out that Malaysia’s LI improved further, rising for the third straight month by 7.7 per cent y-o-y in July 2020 (compared with 4.6 per cent y-o-y in June) due to improved sentiment and increased business activities.
It believed that this suggests a be er prospect for Malaysia’s economy to sustain its recovery into early next year.
It further highlighted that with the reopening of the economy and more businesses have been allowed to resume operations, the Current Index (CI) also registered an improvement, with smaller decline of 2.4 per cent y-o-y (compared with a decline of 3.1 per cent y-o-y in June), mainly due to increased retail trade and to a certain extent some improvement in industrial production.
The improving CI suggests economic activities picked up its pace in the recent months a er a sharp slowdown in April 2020.
“In other words, GDP growth is expected to show a recovery from 3Q20 onwards a er the 17.1 per cent y-o-y plunge in 2Q20.
“In particular, the aggressive monetary policy easing and fiscal stimulus packages provided by the government helped to stimulate the economy and cushion the impact of economic fallout from the ongoing Covid-19 pandemic,” the research team commented.
It also noted that Malaysia’s industrial production rebounded in July and recorded the first positive growth a er four months of decline.
“As more businesses restarted their operations, the overall industrial production index (IPI) increased by 1.2 per cent y-o-y (a decline of 0.4 in June) mainly supported by sustained growth in manufacturing output. The rebound was in line with our expectation of 1.3 per cent y-oy, in view of the growing export activity during the month,”it added.
“To a certain extent, the recovery in external demand contributed to the improving production activities, especially for the trade-oriented industries. On month-on-month basis, IPI growth moderated to 0.2 per cent month-on-month (26.2 per cent m-o-m in June) on slower pick up in manufacturing output and lower electricity generation,” it said.
Overall, MIDF Research said, on the domestic front, economic activities in Malaysia have showed improvements, from the low levels in April, supported by the fiscal stimulus packages as well as monetary and financial measures.
“BNM also highlighted that the potential resurgence of Covid-19 cases remains as a key downside risk to growth outlook both for Malaysia and the global economy.
“On a more positive note, BNM expects the improvement in Malaysia’s economic activities to continue into next year, which will be underpinned by the recovery in external demand and private sector spending,” MIDF Research said.
Also, it said the additional fiscal stimulus introduced by the government in September is expected to provide more support to the economy.
In other words, GDP growth is expected to show a recovery from 3Q20 onwards a er the 17.1 per cent y-o-y plunge in 2Q20.
MIDF Research