THINK tank Socio-Economic Research Centre (SERC) has cut its gross domestic product growth estimates for Malaysia to 4% from the previous forecast of 5%, following the second movement control order that began on January 13.

“It is estimated that the two weeks (of) MCO and CMCO will reduce GDP growth by 0.5 percentage points. 

“And if we assume a one-month MCO/CMCO, it will reduce our baseline estimate to 4% from 5% previously in 2021,” said SERC executive director Lee Heng Guie in his online press conference today.

This estimate, said Lee, was based on the prolonged high number of Covid-19 infections, stricter rules, Budget 2021’s expansionary policy, continuing monetary stimulus and continued financial market and political volatility.

On the upside, SERC said global stabilisation and strong recovery prompted by accelerated timely roll-out of the vaccination programme could raise Malaysia’s GDP for 2021 to 6%.

“It is also assumed that the effective implementation of the largest ever fiscal stimulus (total expenditure of RM322.5 billion) or -5.4% of GDP budget deficit enhances a faster domestic demand driven recovery.

“But uncontrolled infection rates, which will culminate in tighter SOP, slow global recovery, and a weak vaccination programme could reduce Malaysia’s growth to 2%,” said Lee.

In Budget 2021, the Perikatan Nasional government has forecast GDP growth of 6.5% to 7.5%.

Lee said although the economy showed improvement, with a smaller decline of 2.7% in the third quarter of last year, fourth quarter recovery was affected by the surge of Covid-19 infections beginning in late September.

“Sectors that have been the worst impacted by the pandemic, namely travel, hospitality and aviation, have continued to struggle as borders have generally remained closed to tourists and international travels. 

“Assuming a slower pace of improvement in the fourth quarter, we estimate the full-year GDP to decline by 5.8% in 2020,” said Lee.

Lee said although Malaysia can cope with MCO 2.0, the cost of the current lockdown will be even larger and have a long-lasting impact for not doing good enough to balance the health risk and supporting the economy.

He said 2021 is a “redefining” year for Malaysia and the government needs to be bold and decisive in fiscal and economic reforms to strengthen economic resilience and business prospects for the future. 

“It has to chart a road map for restoring public trust in the government by making immediate and tangible improvement in the institutional and political system.” – February 4, 2021.