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PETALING JAYA: Malaysia’s 2021 fourth quarter gross domestic product (GDP) growth is expected to come in at 4.2% year-on-year (y-o-y) compared to a 4.5% decline in Q3’21 due to the pickup in economic activity at the time as more states transitioned into Phase 2 of the National Recovery Plan, according to MARC Ratings Bhd (MARC).
It elaborated that the estimate is based on the improved high-frequency indicators for the quarter such as the Industrial Production Index, that is in parallel with the Malaysian Institute of Economic Research’s Business Conditions Index which rebounded by 25.0 points to settle at 122.0 on the back of increased sales – domestically and externally – and capital investment.
Based on this estimate, the rating agency anticipated GDP growth of 3.3% for 2021.
Moving forward, MARC does not expect any more movement control orders in 2022 on the back of the government’s pronouncements.
“With Malaysia’s successful vaccination programme and, among other things, the reopening of the travel sector, we expect pressure on GDP growth to recede further down the road,” said MARC yesterday.
CGS-CIMB, meanwhile, estimated GDP growth to be at 4.1% y-o-y for Q4’21 and 3.3% y-o-y for the full year.
It said the pace was weaker than its previous expectation of a 5.0% rise y-o-y for Q4’21 and 3.5% for 2021, as consumption rebound was not as strong as expected.
“We see weakness in government services as a key downside risk to our 4.1% forecast for Q4’21,” the research house said in a report.
Although the economic rebound came with the transition to Phase 4 of the National Recovery Plan, it observed that the pace of recovery remained uneven across sectors.
“Factors such as flash floods in late December 2021, a shortage of foreign workers and raw materials, as well as inflationary pressures, likely affected the recovery momentum at the end of 2021.”
CGS-CIMB pointed out the Industrial Production Index’s manufacturing component rose 8.4% on-year in December, a slowdown from the 11.3% increase in November.
For 2022, MARC expected GDP growth to come in at 5.7% due to a more favourable backdrop. It opined that higher energy prices and the ongoing supply chain disruptions will continue to pose an upside risk to inflation in Malaysia.
“With economic activity normalising, inflation is expected to edge up further from 2021’s average monthly headline inflation rate of 2.5%,” said the rating agency. However, the upside risk should remain contained by, besides fuel inflation’s dissipating base effect, the continued slack in the economy and still elevated unemployment rate (December 2021: 4.2%).”
It expects Bank Negara Malaysia (BNM) to only tighten its monetary policy in H2’22 after domestic demand has gained more traction. For 2022, the average monthly headline inflation rate is projected to come in at 2.3%.
MARC said that given the sluggish phase of economic recovery Malaysia is undergoing, it is not surprising that the economy is still nowhere near overheating.
“The Malaysian economy has not been spending as much as it should given the low-interest rate environment. Inflation thus remains relatively mild when compared with the situation in advanced economies where it has surged to decade highs. In other words, Malaysia has yet to reach a situation where it needs to tighten monetary policy to clamp down on inflation.”
BNM will announce the GDP growth figures today.
