Budget 2021: ‘Malaysia on path to economic recovery’

Malaysia’s growth in the third quarter (Q3) of 2020 signals the country’s path towards economic recovery — thanks to government measures to protect lives and livelihoods, market observers said.

They said the much slower gross domestic product (GDP) contractionary pace of 2.7 per cent in Q3 against -17.1 per cent in Q2 was better than expected.

They pointed out that despite the contraction, Malaysia had posted the best recovery among major Asean countries in the quarter.

“In Q2, Malaysia was the worst performer in terms of GDP growth among Asean 5 countries, mainly due to the fact that Malaysia had a nationwide lockdown or Movement Control Order (MCO) with strict measures in placed as public health and safety was the first priority,” MIDF Research said.

“However, as Malaysia eased the restrictions in stages, the recovery was much faster in Q3, exceeding the performance of Singapore, Indonesia and the Philippines so far.”

Singapore had announced a seven per cent contraction in Q3 (versus -13.3 per cent in Q2), the Philippines -11.5 per cent (versus -16.9 per cent in Q2) and Indonesia -3.5 per cent (versus -5.3 per cent in Q2).

MIDF Research said the various stimulus packages announced by the Perikatan Nasional-led government on top of a cumulative 125 basis points cut in Bank Negara Malaysia’s key interest rate this year, would continue to provide support for the recovery.

“Based on current developments and indicators, the economy is set to continue improving. However, we expect it to be on a gradual term as the sentiments are still weak due to a resurgence of Covid-19 cases in the country and also globally,” the firm added.

The government has announced a slew of economic packages to help Malaysians and businesses fend off the impact of Covid-19.

This includes an expansionary 2021 Budget last Friday that boosted government spending next year by 2.5 per cent to RM322.5 billion.

Prior to this, the government unveiled the Prihatin Rakyat Economic Stimulus Package, Prihatin SME+, National Economic Recovery Plan (Penjana) and Prihatin Supplementary Initiative Package (Kita Prihatin), totalling RM305 billion.

Putra Business School associate professor Dr Ahmed Razman Abdul Latiff said the sharp rebound was due to the government’s efforts to stimulate the economy via several fiscal stimulus packages, and easing of movement restrictions which resulted in the opening up of almost all economic sectors.

Nevertheless, he said, the fight against Covid-19 was not over.

“Even though many economic sectors are allowed to remain open, consumers and investors’ confidence are at the lowest and affecting domestic economic activities, especially towards the end of the year.

“Therefore continuous fiscal support via the recently-announced 2021 Budget is crucial to ensure that the government’s target of up to 7.5 per cent GDP growth remains achievable,” Ahmed Razman said.

Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said measures to contain the pandemic spread and flatten the infection curve had allowed economic activities to resume albeit gradually.

“This is almost synchronised with the rest of the world, which saw a significant rebound in net exports by a double-digit pace of 21.9 per cent in Q3.

“The December quarter should see some speed bumps in terms of economic activities, owing to the implementation of the CMCO in most states. However, the experience during the first round of the MCO had resulted in minimal impact on business operations. Therefore, Q4 GDP should remain fairly decent the way we see it,” Afzanizam said.

Malaysian Rating Corp Bhd (MARC) said the solid Q3 recovery was due to Covid-19-related stimulus measures as well as improved industrial production and external demand.

MARC said the resumption of economic activities had enabled some level of normalisation, although the recent spike in Covid-19 infections and the imposition of the CMCO in a majority of states could dampen Malaysia’s economic growth trajectory in the immediate term.

“Malaysian businesses continue to show great resilience in weathering the downturn. According to a Department of Statistics Malaysia survey, only 1.9 per cent of firms indicated that they face impending closure, while 42.5 per cent said they were able to survive for more than six months,” the firm said.