Economy to recover if situation remains under control
KUALA LUMPUR: Analysts continue to expect economic activity to pick up from its trough in the second quarter of 2020 (2Q20), if the Covid-19 situation remains under control.
For Affin Hwang Investment Bank Bhd (Affin Hwang Capital), the research firm expected gross domestic product (GDP) growth to decline at a slower pace of 0.8 per cent year on year (y-o-y) in the second half of 2020 (2H20) from -8.3 per cent y-o-y in 1H20.
“For the full year, we project real GDP growth to average -4.5 per cent, which is at the midrange of the official forecast between -3.5 per cent and -5.5 per cent, before rebounding to six per cent projected for 2021,” Affin Hwang Capital said.
“If the Covid-19 situation remains under control, we continue to expect economic activity to pick up from its trough in 2Q20, as reflected in labour market conditions, household spending and wholesale and retail trade sub-sectors, as well as improving export growth.
“Besides that, current expansionary fiscal stimulus measures amounting to RM305 billion or about 20.7 per cent of GDP as well as supportive monetary and financial measures will support the pace of economic recovery.”
Affin Hwang Capital expected growth in the manufacturing sector to gradually recover in 2H20 partly supported by the healthy demand for Malaysia’s electrical and electronic (E&E) products.
This was in line with global semiconductor sales in August, which rose for the seventh consecutive month at a similar pace as the previous month of 4.9 per cent y-o-y (4.9 per cent yo-y in July).
The research firm recalled that this has also been reflected in global manufacturing Purchasing Managers’ Index (PMI) in September which rose to a twenty-five month high of 52.3 from 51.8 in August, its third month above the 50-level mark, underpinned by increases in output and new orders while new export businesses also rose for the first time in over two years.
“However, there are some downside risks to the external demand. We are cautious that the outlook for the manufacturing sector may be derailed as Malaysia’s manufacturing PMI slowed for the third consecutive month to 49 in September from 49.3 in August.
“This was also its second month dipping below 50, as new orders continued to slow.”
Affin Hwang Capital also gathered that the rising number of Covid-19 cases in Malaysia in recent weeks could also impact manufacturing production across all sectors and will also hinder recovery of production towards pre-pandemic levels as manufacturers are likely to operate below their maximum capacity due to reintroduction of possible strict operating procedures.
“Besides that, the risk of a second wave in other countries especially trade partners could also lead to re-imposition of lockdown measures which will impact export-oriented industries.”
Meanwhile, AllianceDBS Research Sdn Bhd (AllianceDBS Research) remained cautious on the near-term improvement in domestic industrial production in view of the uneven recovery of the global supply chain.
“The recent resurgence of the Covid-19 pandemic can also weigh on the outlook for Malaysia’s production strength, giving rise to growing uncertainties over the country’s overall domestic economic activities,” AllianceDBS Research said.
“For now, we keep our full-year 2020 GDP contraction forecast of -4.3 per cent y-o-y, without ruling out further downside risks.”