4Q20 GDP could decline more than expected
KUCHING: Malaysia’s fourth quarter of 2020 (4Q20) gross domestic product ( GDP) could contract more than expected if the number of new Covid-19 cases continue to remain high, the research team at AmInvestment Bank Bhd (AmInvestment) projected in its recent report on Malaysia’s 3Q GDP numbers.
It noted that after a 17.1 per cent year-on-year (y-o-y) contraction in 2Q due to health measures to contain the spread of the pandemic, the economy in 3Q improved with a slower contraction of 2.7 per cent y-o-y, slightly higher than its projection of -2.5 per cent y-o-y.
“This improving trend is likely to be short-lived with the rising number of new Covid-19 cases since October that resulted in the imposition of more restrictive measures.
“Such measures are hurting the economy, as reflected by the forward-looking indicators presented in October, which showed signs of cooling off.
“And with the number of new cases still high in November, the restrictive measures in place now until December 6 could be extended. Should that happen, 4Q2020 GDP is expected to shrink more from 3Q’s -2.7 per cent,” it opined.
AmInvestment said, its preliminary estimations based on the current set of data suggest that the contraction could be around three to 3.5 per cent.
“This would translate to a fullyear contraction of 5.3 per cent to 5.7 per cent from our earlier projection of -3.6 per cent to -5.6 per cent,” it added.
Meanwhile, the research team at Maybank Investment Bank Bhd (Maybank IB Research)
This improving trend is likely to be short-lived with the rising number of new Covid-19 cases since October that resulted in the imposition of more restrictive measures. AmInvestment
said it expected speed bumps in Malaysia’s economic recovery after 3Q. It noted that Malaysia’s economic outlook is a function on 3Ps; ‘pandemic’, ‘policy’ and ‘politics’.
“We see speed bumps in recovery process given the current third wave of Covid-19 cases that led to the implementation of Conditional Movement Control Order (CMCO) since mid-October 2020 which have been extended into December 2020 and expanded to currently involve nine states and three federal territories that account for 84 per cent of Malaysia’s GDP, in turn affecting movements as per the mobility indices that are highly correlated with real GDP,” it pointed out.
It also highlighted that politics and policy are additional potential “potholes” to the economic outlook – domestic political instability and policy uncertainty arising from the razor thin majority of the Perikatan Nasional (PN) Government in the Parliament, underscored by the risk of political or legislative impasse on Budget 2021, which was tabled on November 6, 2020, scheduled for voting by lawmakers on November 25, 2020.
“While there is the provision in the Federal Constitution via Article 102 where Parliament can approve an interim budget to ensure the government will continue to meet obligations like salaries, pensions
and debt servicing as well as to ensure no disruptions to essential public services, there is the political risk of the voting on Budget 2021 being a de facto no-confidence vote on the Perikatan Nasional (PN) government, with potential ramifications such as change in leadership and government or a snap election.
“This adds to the already fluid outlook from the abovementioned kinetic of the pandemic,” it said.
All in, Maybank IB Research adjusted its 2020 forecasts for sectors (except for services) and demand aggregates (except for private investment and external demand) to factor in the 9M20 numbers.
“Our 2020 forecast implies 4Q20 real GDP will shrink by -2.8 per cent y-o-y although will continue to expand by non-seasonally adjusted 2.6 per cent q-o-q. The figures also assumes the economic impact of current CMCO is less severe than MCO, as BNM estimates that the GDP loss from current CMCO is between RM17 billion to RM22 billion compared with RM30 billion to RM40 billion during MCO,” it added.
On a separate note, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) said the third wave of Covid-19 is expected to weigh on near-term economic growth prospects, mainly due to the reinstatement of travel restrictions under the CMCO phase.
“Nonetheless, we expect this would not be as severe as during the MCO period in the 2Q20, given that most businesses, essential and non-essential, are allowed to continue operation under strict standard operating procedures (SOPs),” it added.
“The services sector, specifically the tourism-related industry, would continue to be affected by the domestic interstate travel restrictions and international border closures.
“The manufacturing sector is expected to endure demand and supply chain disruption due to the tightened movement restriction to contain the outbreak.
“Monsoon season is expected to weigh on the agriculture subsector. However, it would be partially supported by higher crude palm oil (CPO) output and prices.”
Kenanga Research opined that on the external front, the USChina trade jitters would continue to weigh on global trade as the market awaits more clarity on Biden’s trade policy approach.
Against the aforementioned circumstances, the research arm revised downwards its 4Q20 growth forecast to -1.7 per cent from the previous -1.1 per cent.
“This would bring the 2020 GDP growth forecast to settle at -5.1 per cent compared to the Ministry of Finance’s (MoF) -4.5 per cent forecast.
“An expected global growth recovery and the impact of the large fiscal stimulus on domestic economy would result in a projected growth rebound of 6.1 per cent in 2021.”
This was in contrast to MoF’s 6.5 per cent to 7.5 per cent projected growth rebound.