PETALING JAYA: Malaysia’s full lockdown beginning tomorrow to curb the exponential increase in Covid-19 infections is expected to have a less severe impact on the economy compared with the first movement control order (MCO 1.0) even as various analysts lowered their 2021 gross domestic product (GDP) growth projections for the country to 4.4-5.4%.

For the two-week lockdown from June 1 to 14, CGS-CIMB estimated an aggregate capacity cut of 25% or economic losses of RM1 billion a day, which is milder than the daily losses of RM2.4 billion reported in the previous year. Subsequently, for the limited reopening of phase 2, it projects the impact will narrow the capacity cut to 12% or RM500 million a day.

“Imputing these assumptions for the six-week phase 1 and phase 2 and the additional month of phase 3 (10% capacity cut or RM400 million per day) leads to downside risk to our GDP outlook but we do expect some degree of policy support as well as pent-up demand to materialise when these restrictions are eventually relaxed,” said the research house in a report today.

Hence, it has revised down its 2021 GDP forecast for Malaysia from 5.7% to 4.4% to reflect the latest developments.

Given the economic impact on livelihoods from the restrictions, CGS-CIMB expects the government to unveil a stimulus in the range of RM20-RM30 billion or 1.5% of GDP, to support vulnerable households and affected businesses.

Meanwhile, PublicInvest Research calculated a two-week lockdown in the Klang Valley could shave 0.8% off the economy resulting in 5.4% growth for this year. If the government extends the lockdown duration to four or eight weeks, it estimated that the move would reduce Malaysia’s GDP by 1.4% to 2.9% translating into 4.7% to 3.1% growth, respectively.

“We are concerned that the improvement in labour market conditions may be delayed by the constant MCOs and resultant strains on businesses, now made worse by the implementation of a total lockdown,” said the research house, citing Senior Minister (Security Cluster) Datuk Seri Ismail Sabri Yaakob’s statement that 2.8 million people could be at risk of losing their jobs should a total lockdown be imposed.

Although it was heartened by Malaysia’s Q1 GDP contraction of 0.5% providing hope that a 6% growth expectation for 2021 was on track, PIVB Research is not so certain now. However, it said there will not be an economic meltdown similar to that last year, as that period coincided with a global lockdown which decimated demand-supply dynamics.

“The start-stop nature of these recovery measures does not bode well for sentiment, however, and may prove to be a drag on the GDP-dominant services sector in the intermediate term.”

The sentiment is shared by MIDF Research, which believes the adverse impact from the coming full lockdown will be less severe than the MCO 1.0 lockdown last year. With that it projected the country’s GDP growth to moderate to 4.6% against an earlier projection of 6.2%.

The research house expects the full MCO to only have a transient impact on Malaysia’s macro output and corporate earnings with the potential fallout being felt in the second and third quarter of this year.

“In this regard, it must be highlighted that our output growth estimate for the final quarter of the year remains unchanged at 3.1% year-on-year,” MIDF said, adding that the impact of the lockdown on corporate earnings may cease in the final quarter of this year.

With that MIDF Research maintained a year-end target of 1,700 points for the FBM KLCI as the trajectory of forward earnings growth is anticipated to recover in the final quarter of this year. Previously, it had also recommended a buy on weakness stance to any negative knee-jerk market reaction to the lockdown.

Kenanga Research also espoused market weakness as a buying opportunity, as it views these lockdown measures as temporary setbacks with limited impacts that are necessary in order to quell the spread and restore some progress in Covid management.

“With additional precautions taken and vaccinations progressing more rapidly, chances are better that the current worrying rate of infection can be brought under control and we should see this lockdown easing as we draw closer towards H2’21,” it said.

With that the research house said it is optimistic for a better H2’21 and recommended investors to accumulate on weakness. For end-2021 it has a 1,710 points target for the FBM KLCI.