RELAXATION OF MCO 2.0 MITIGATES GDP IMPACT IN Q1 2021, SAY ECONOMISTS

By S. Kisho Kumari & Zufazlin Baharuddin

KUALA LUMPUR, May 11 -- The government’s decision to relax the Movement Control Order restrictions in January (MCO 2.0) has been instrumental in mitigating the impact and severity of the contraction for Malaysia’s economy in the first quarter of 2021 (Q1 2021).

Malaysia recorded a Gross Domestic Product (GDP) contraction of 0.5 per cent in Q1 2021, a sign of recovery from a decline of 3.4 per cent in the preceding quarter, with improvement seen in all economic sectors.

Hence, Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said such an out-turn was better as recovery was seen after the government allowed businesses to operate during MCO 2.0, unlike MCO 1.0 last year.

According to Bank Negara Malaysia (BNM), all economic sectors recorded improvement in Q1 2021 led by manufacturing, which grew stronger at 6.6 per cent compared to 3.0 per cent in the fourth quarter (Q4) of 2020.

The central bank said Malaysia would remain on track to achieve a GDP growth of between 6.0 per cent and 7.5 per cent in 2021.

Going forward, Mohd Afzanizam said the GDP in Q2 2021 could register a decent reading given that the low base factor was recorded last year when the economy steeply declined by 17.1 per cent in that quarter.

“While we may see a huge turnaround in the second quarter, the underlying trend is still tepid especially when the MCO 3.0 has been instituted from May 12 to June 7,” he told Bernama.

Nonetheless, he projected good traction coming from abroad as the country has benefitted from the global economic recovery.

“So, it’s kind of a two-speed economy where the external sector is on course to lead the recovery while domestically, key sectors such as services-oriented industries would be struggling to record a sustainable recovery due to high infection rate and subsequent MCO measures that would limit human mobility,” he said.

As such, he noted that the monetary policy is likely to stay accommodative and therefore, talks of a possible rate hike seem to be quite premature at the moment.

“We also foresee that the BNM may want to keep the overnight policy rate (OPR) steady given that signs of recovery especially from abroad are also quite visible,” he pointed out.

Meanwhile, Moody’s Analytics associate economist Sonia Zhu said despite a gradual easing of GDP contractions, conditions will likely stay weak in the coming quarter given the persistence in consumption slump. 

“As a domestic-driven economy, strength in the external sector is insufficient for the economy to rebound completely from its pandemic lows,” she said in a note today.

Zhu said a stronger push towards wider vaccination and herd immunity will be the key to the domestic recovery and should facilitate an economic rebound.

“At present, only 3.4 per cent of Malaysia's total population has received at least one dose of the COVID-19 vaccine.

“The slow vaccination rate, exacerbated by vaccine hesitancy, casts doubt on the government's ability to reach the herd immunity target by end-2021, tilting the balance of risks to the downside for the subsequent quarters,” she added.

-- BERNAMA