Malaysia lowered its 2021 economic growth forecast for a second time, as renewed movement restrictions and rising infections hamper the recovery.

Gross domestic product is expected to expand 3%-4% this year, the Central Bank of Malaysia said on Friday (Aug 13), down from an earlier estimate of 6%-7.5% growth.

Malaysia’s economy shrank 2% in the second quarter on a seasonally adjusted basis compared to the previous three months, according to data from the central bank. That cut short a brief uptick, and compared with the median estimate of a 1.9% contraction in a Bloomberg survey of seven economists.

The government placed the entire country under lockdown in June, a move that cost 40,000 people their jobs and sent industrial growth to a five-month low. The restrictions cost the economy an estimated 1.1 billion ringgit ($260 million) a day.

“Malaysia’s growth recovery is expected to broadly resume in the later part of the second half of 2021 and improve going into 2022,” central bank Governor Nor Shamsiah Yunus said in a statement. “A key catalyst for economic reopening and a driver of positive sentiment will be the continued progress and effectiveness of the national vaccination program,” she said, adding that growth will also be supported by higher commodity output, pent-up demand and large-scale infrastructure projects.

Compared to a year earlier, when the country imposed its strictest containment measures against the pandemic, the economy grew 16.1%. The median estimate in a Bloomberg survey of 19 economists was for 14.1% growth.

Reality Check

Friday’s release is “a sober reality check of how the ongoing Covid-19 resurgence and the resulting protracted restriction measures are dealing body blows to the Malaysian economy,” said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp. in Singapore. “While BNM still strikes an optimistic tone, pointing out a fourth-quarter gradual recovery and an acceleration into 2022, that is the future. Now is now. And the Malaysian economy as of now is hurting — leading us to maintain our call” that BNM will cut the overnight policy rate next month.

While record-low interest rates provide stimulus for the economy, the central bank has policy space to do more if needed, Shamsiah said, as well as tools to keep financial markets orderly.

Most states are expected to reopen under new norms as early as October, Prime Minister Muhyiddin Yassin said last month. The government has announced it will no longer use daily infections as a guideline for relaxing curbs and will focus instead on hospital admissions, a move that could expedite the reopening process.

“There is some light at the end of the tunnel,” said Alex Holmes, Asia economist at Capital Economics Ltd. “While we expect weakness to continue this quarter, we have a strong bounce-back penciled in” for the final three months of the year.

Record Caseload

Still, Malaysia’s virus woes are far from over. New infections topped a record 21,000 on Thursday (Aug 12), fueled by the delta variant in the country’s most industrialized state, Selangor, and in Kuala Lumpur. About 71% of the nation’s adult population has received the first dose of the vaccine, while 42% have completed both doses, according to the health ministry data, with the government aiming to fully vaccinate the entire adult population by October. – (Bloomberg)

Other points from the central bank’s briefing:

  • Movement curbs will shave off five percentage points from this year’s GDP
  • The economy is expected to trough in the third quarter before improving in the fourth
  • Headline inflation now is expected to average 2%-3% this year, down from an earlier estimate of 2.5%-4%
  • The current account recorded a 14.4-billion ringgit surplus in the second quarter
  • Domestic market likely to experience FX volatility


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