Rebound of 6% next year

Diversified fundamentals, institutional strength the basis

PETALING JAYA: The Malaysian economy is expected to rebound 6% in 2021, from a contraction of 5.5% this year.

This is according to UOB Malaysia senior economist Julia Goh, who has forecast the economy to rebound next year as a result of government efforts to counter the effects of the Covid-19 pandemic, as well as improved external demand conditions.

However, recovery is expected to be uneven and dependent on the risks of any resurgent wave of the Covid-19 pandemic.

“The silver linings lie in the projected recovery in external demand, fiscal stimulus measures, and the potential rollout of the vaccine.

“Malaysia has strengthened its economic fundamentals following past crises – its diversified economic fundamentals and key institutional strength provides the basis for recovery.

“Coming from a low base effect, all sectors should see a sharp rebound next year from pent-up demand as the conditional movement control order (CMCO) ends and restrictions relax,” she said during a virtual media conference yesterday.

UOB’S gross domestic product (GDP) estimates were more conservative as compared to the official GDP outlook of -4.5% this year and 6.5% to 7.5% next year.

Goh explained that UOB’S lower GDP forecasts were due to the imputing of upside risks of the Covid-19 vaccine as well as the execution of government spending on development and infrastructure projects.

She added that labour market challenges will continue to persist, posing headwinds to consumption, which remains a key driver of growth.

“Extended wage subsidies, reskilling, job-creation incentives and other measures introduced in the Budget 2021 to address labour market challenges will provide hope and optimism for the unemployed and hard-hit sectors such as tourism and hospitality.

“We also expect that committed investments in the rubber, electrical and electronics and healthcare sectors will potentially drive growth next year,” said Goh.

Apart from that, China’s sharp cyclical rebound in economic growth, coupled with moderate recoveries across Asia and other developed countries will boost global trade and investments.

“Other key developments include the recent signing of the Regional Comprehensive Economic Partnership (RCEP), which marks the broadening and deepening of economic and trade linkages as well as the integration among Asia Pacific economies,” said Goh.

On the economic cost of the CMCO, Goh estimated that the value is halved at Rm17bil to Rm22bil, as compared to the economic cost of Rm30bil to Rm45bil during the lockdown in March to April.

“Malaysia has strengthened its fundamentals.” Julia Goh