Malaysia remains on course to recovery this year after easing the decline in its economic output in the first three months of 2021.
The country’s gross domestic product made a 0.5% contraction in the first quarter, government statistics released last week showed, extending the economic slump to five quarters as the Covid-19 pandemic persists.
The figure, however, is better than the 3.4% fall in the last three months of 2020.
The perceived improvements in local demand and “robust” exports performance helped soften the continuing economic contraction, the country’s central bank claimed.
“The better overall performance reflects the improvement in domestic demand and the strength in our exports, Bank Negara Malaysia (BNM) governor Datuk Nor Shamsiah said in a press statement.
Total domestic demand, which accounts for 94% of GDP, fell 1% in the January-March period, easing from the 4.5% decline in the previous quarter.
Exports surged 11.9%, which in turn lifted the manufacturing sector – reporting an output growth of 6.6%.
Meanwhile, headline inflation inched up 0.5% from the 1.5% slump recorded in the final quarter of 2020 driven by the positive yet low uptick in fuel prices following base effect. The central bank sees another spike in the next quarter’s print given a lower base from the low fuel prices recorded in the same period last year.
The ringgit fell 3.5% in value against the US dollar as the latter strengthens amid the rise in US Treasury yields, spurring the rebalancing of investment portfolio among global investors. The currency is expected to “remain exposed to periods of heightened volatility,” according to BNM.
New lockdown dampens recovery outlook
With an ongoing third wave of Covid-19 infections, Malaysia reimposed a month-long lockdown across the country from May 12. This further “clouds the economic outlook ahead,” according to ING senior economist Prakash Sakpal in a research note.
Covid-19 cases in the country rose above 450,000 with deaths nearing 2,000.
Given tighter restrictions, ING slashed its year-on-year GDP growth forecast for the second quarter to 13.9% from 16.7%.
Yet, the central bank remained optimistic about the economy’s growth prospect as it permits business activities during the lockdown.
“Despite the recent re-imposition of containment measures, the impact on growth is expected to be less severe than that experienced in 2020, as almost all economic sectors are allowed to operate,” it said.
BNM notes that overall growth recovery is hinged on “better global demand, increased public and private sector expenditure as well as continued policy support.”
The economy is also poised to benefit from its recovering labor market, higher production in manufacturing and oil and gas and the rollout of vaccines against Covid-19.
As of early May, Malaysia fully vaccinated 2.3% of its population or over 700,000 citizens, while it administered nearly 2 million vaccine doses, based on data from Our World in Data.
“Nevertheless, the pace of recovery will be uneven across economic sectors,” it added.
The BNM expects full-year GDP growth to hover between 6-7.5%, while ING maintained its 5.3% growth forecast. In terms of inflation, it sees the 2021 print to average higher between 2.5-4% mainly due to the cost-push factor of higher global oil prices.
“Going forward, Malaysia is well-positioned to continue benefitting from stronger global economic and trade activities,” Shamsiah said.
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