AFTER being battered by Covid-19 pandemic this year, the economy could grow by up to 6.5% in 2021, said a local economic think-tank, provided that certain sectors post better-than-expected recovery.

The Socio-Economic Research Centre (SERC) said the baseline growth for next year is 5.5% and would be driven by the retail, tourism and construction industries.

In comparison, SERC executive director Lee Heng Guie projects that Covid-19 and measures to contain it will result in an economic slump of -3% growth for 2020.  

“After the sudden stop in economic activity in the first half of 2020 because of Covid-19 and measures to contain it, economic activities show signs of normalising as we head into 2021,” said Lee during an online briefing today.

“Our forecast for next year’s baseline recovery is 5.5% and in the best-case scenario, it could even go up to 6.5%.”

Lee said the second half of the year should show signs pointing to a robust recovery next year, Lee added.

These include the positive impacts of the RM295 billion Penjana and Prihatin schemes on businesses and consumers as the latter two adjust to the new normal.

Other signs are when retrenchments decline and businesses start to recoup losses they suffered during the eight weeks under the movement control order enforced on March 18.

The return of inbound foreign tourists if the government eases travel restrictions from green zone countries and a gradual recovery in domestic tourists would also boost economic activity, Lee said.

“Hopefully export decline will be shallower during the second half of 2020. These are the expectations we are setting for the second half (of the year).”

According to SERC’s recovery tracker, most factories have resumed 70-80% of their operations, said Lee.

As of June, 15 million, or 98.8% of employees have returned to work compared to 67.2% in May when the conditional movement control order was in effect.

Major shopping malls have reported 50-70% of traffic returning while retailers have said that sales are up by a whopping 40% from pre-lockdown days.

Lee said there remained risks to an improved recovery, the biggest being a second wave of Covid-19 outbreak in Malaysia or worldwide which would reduce trade.

“A second wave would trigger another round of lockdowns and the recovery would be slower next year.” 

There is also the risk that domestic businesses could take longer to recover and repair the damage from lost demand during the lockdown.

“Some micro-entrerpreneurs (such as) bubble tea stalls have not re-opened at all after the MCO was lifted so there are businesses and jobs that are gone permanently.

“Also, now that businesses find that their workers can work remotely, employers may find that they can make do with less workers.”

Another possible obstacle to recovery is that people, having felt the financial impact of the pandemic, would decide to save instead of spend in anticipation of another economic shock. – July 9, 2020.