Analysts: 3Q economic recovery could be softer than expected
KUALA LUMPUR: Based on Malaysia’s leading index (LI), analysts believe the nation’s economic recovery is on track but its third quarter (3Q) performance could be so erthan-expected due to the surge in the Coronavirus Disease 2019 (Covid-19) cases.
In a report, the research team at Public Investment Bank Bhd (PublicInvest Research) pointed out that the rebound in LI showed favourable signs that the economy is picking up in momentum as the index is a combination of selected economic indicators that provide advance signals in economic direction.
However, it said: “There could be some pullback in the LI in the next few months however no thanks to pockets of Conditional Movement Control Order (CMCO) in some parts of the country.
“This is a concern as it involves major states like Selangor and Wilayah Persekutuan Kuala Lumpur and Putrajaya which is the country’s major economic backbone.
“Though the authorities have de ly averted the need for a full lockdown, the decision to partly close the economy may affect output to some extent.”
Nevertheless, the research team said the downside risks are offset to some extent by massive government stimulus and extended period of accommodative interest rate environment.
“Nonetheless, the steady climb of the LI signals that the economy is expected to remain in positive trajectory in the next two quarters,” it added.
Meanwhile, it said, Malaysia’s Coincident Index (CI) which reflects the overall economic condition also performed favourably, reflected by the 0.5 per cent gain on a month-onmonth (m-o-m) basis though this is a slowdown against July’s 1.3 per cent.
“Growth was primarily driven by Volume Index of Retail Trade (up 0.5 per cent) amid consumption that was supported, among others, by generous financial transfer (Bantuan Sara Hidup) and government stimulus to support employment (wage subsidy). On a yearly basis, the CI improved further to -2.3 per cent in July from -2.4 per cent in July. The diffusion index for CI was unchanged for the month however,” it noted.
All in, PublicInvest Research opined, “3Q economic recovery could be so er-than-expected amid Covid-19 that remains a big issue. Efforts to contain the spread of Covid-19 could be a precursor for a rise in fiscal spending and a loss in output and therefore, a drag on the engine of growth.
“This may also take some shine out of the LI in the 4Q.”