A THINK-TANK today projected that the Malaysian economy could register a 4% growth this year, if Covid-19 cases continue to rise and the vaccination programme progresses at a slow pace.

Socio-economic Research Centre executive director Lee Heng Guie said apart from that, cautious discretionary spending and the gradual lifting of international and interstate travel ban are other factors supporting the projection.

However, Lee said the 4.0% gross domestic product growth projection is a base case scenario and if circumstances are favourable the country could see an upside growth of 6.0%. 

He said a 6.0% growth will be possible on the back of accelerated virus containment measures and vaccination, if the pent-up consumer demand is unleashed and a rebound in the services sector with the resumption of international travel.

The economy contracted by 5.6% in 2020, which is the biggest decline since the 7.4% in 1998 as a result of the Asian Financial Crisis.

Bank Negara Malaysia is set to announce the country’s economic performance for the first quarter of 2021 on May 11.

“I believe this year is a year of recovery but I continue to see uneven performance in some economic sectors, which warrants continuous monitoring by the government in order to ensure that the recovery is bloc-based and sustained,” he said.

Lee, however, said the slow vaccination will not completely stall economic recovery and a stronger rebound can be expected in the latter half of the year.

Apart from the vaccination drive, he also drew attention to factors such as the continuous scarring effects from the movement-control order (MCO) and the pandemic, recovering domestic demand and exports gaining a stronger traction, which will influence the recovery process.

He said the effects of MCO 3.0 may be similar to the MCO 2.0 and not as severe as the earlier lockdown. However, he said the high daily cases will still impact consumer sentiments.

Putrajaya enforced MCO in six districts in Selangor beginning today till May 17 and in Kuala Lumpur, parts of Johor, Terengganu and Perak from tomorrow till May 20.

Malaysia yesterday recorded 3,744 cases, bringing the cumulative total to 424,376 while another 17 deaths were reported, bringing the total number of fatalities to 1,591.

What is also worrying is the increasing number of active cases, which currently stands at 32,939.

Lee is also expecting inflation to rise by 3 to 4% in 2021 after the country saw a deflation at 1.2% last year.

“We are moving from a deflation to a cost-pushed inflation in 2021,” he told reporters at SERC’s quarterly briefing today.

He said the producer price index has also increased, leading to an increase in raw material prices, which will in turn lead to the increase in the cost of production.

He added that prices of items may increase as producers may have to eventually pass the cost to customers.

Lee said the higher prices of items such as fresh food and produces and furniture may not be entirely due to the festive season but also because of inflation.

He is also expecting the unemployment rate to gradually improve to 4.5% at the end of December 2021. – May 6, 2021.