CREDIT rating agency Fitch Solutions has revised Malaysia’s gross domestic growth (GDP) for 2021 to 0% from 4.9% previously due to Covid-19 cases remaining high and a continued forecast of lockdowns for the rest of the year.

Its note, dated August 13 before relaxed conditions were announced yesterday, said the economy would remain stagnant from last year, when the pandemic began.

Its revised 0% growth forecast for this year takes into account the 2% contraction for the second quarter of this year.

Its earlier 4.9% growth projection had only accounted for nationwide lockdowns until the first half 2021, and not into the second half of the year, Fitch added.

“Domestic demand outlook has darkened considerably, and we now expect private consumption to do worse than in 2020, while investment will likely only show marginal improvement.

“As the third wave of Covid-19 infections to disrupt the recovery in Malaysia is playing out to a far greater extent than we had previously expected, we at Fitch Solutions have revised down our 2021 real GDP growth forecast to 0%, from 4.9% previously.”

While real GDP expanded by 16.1% year-on-year, Fitch Solutions said the “true picture of the economy” is revealed in the 2% contraction quarter-on-quarter in the second quarter of this year.

It attributed this contraction to the lockdowns implemented this year that had affected private consumption, which has contracted by 11.5% quarter-on-quarter, compared to the five-year-average quarter-on-quarter growth rate of 2.4% pre-pandemic for the second quarter.

“This demonstrates the severe impact the third wave of infections has had on the key growth engine of the economy – private consumption accounts for around 70% of GDP.”

Predicting that lockdowns will continue to last for the second half of 2021, Fitch Solutions said the outlook for domestic demand, in particular private consumption and gross fixed capital formation (GFCF) is now much worse.

“Accordingly, we have revised our forecast for private consumption growth to -2.0% from 3.0% previously and our forecast for GFCF growth to 1.5% from 4.0% previously.”

It also predicted higher unemployment, noting the increase of 4.5% in May to 4.8% in June as released by the Department of Statistics.

Meanwhile, exports are forecasted to grow by 16.1%, and imports by 18.4%.

“While the government has opted to allow more industries to operate in spite of the lockdown, external demand is likely to prove less strong than we had previously expected, given the serious outbreaks of Covid-19 elsewhere in the region, including Thailand, the Philippines, Vietnam and Indonesia,” the agency said, adding that even China is facing risks of a sharper slowdown in the second half of this year.

Imports, meanwhile, will be supported by the need to import medical supplies to cope with the pandemic, as well as high prices of refined fuels that Malaysia remains a net importer of, it added. – August 16, 2021.