,The research unit of Fitch Ratings based its revision for its forecast on the country’s second quarter GDP performance, which contracted by 2% quarter on quarter (q-o-q), despite growing 16.1% year on year (y-o-y).
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PETALING JAYA: Fitch Solutions has cut its 2021 forecast gross domestic product (GDP) growth for Malaysia to zero from 4.9% as it felt the third wave of Covid-19 infections will disrupt the country’s economic recovery.
The research unit of Fitch Ratings based its revision for its forecast on the country’s second quarter GDP performance, which contracted by 2% quarter on quarter (q-o-q), despite growing 16.1% year on year (y-o-y).
It said GDP growth figures fell far below the research unit’s previous expectations, thus compounding its view that the third wave of Covid-19 infections would disrupt the country’s economic recovery even more than expected.
While Malaysia’s real GDP expanded by 16.1% y-o-y in the second quarter, the true picture of the economy is best reflected by the negative 2% q-o-q growth rate, it said.
It attributed the contraction to increasingly stringent lockdowns that were implemented in Q2 this year that culminated in a national total lockdown that continued to August 13.
Bank Negara has revised downwards 2021 GDP growth forecast to between 3% and 4% due to the prolonged nationwide lockdown and lingering uncertainties from the pandemic which would weigh heavily on the economy.Fitch Solutions also warned of a gloomy outlook for domestic demand, namely private consumption and gross fixed capital formation (GFCF).
GFCF measures the net increase in fixed capital. This includes spending on land improvements; plant, machinery and equipment purchases; the construction of roads, railways, private residential dwellings, and commercial and industrial buildings.
Meanwhile, CGS-CIMB sees GDP remaining subdued in the third quarter given that major curbs on physical movements and business operations are still in place.
This is particularly in economically-significant states, while continuous policy support such as cash disbursement, wage subsidies, and loan moratorium are expected to provide only a partial relief against the economic headwinds.
“However, the ramp-up in Covid-19 vaccination bolsters the prospects for a sustainable economy re-opening in the fourth quarter.
“We reiterate our GDP growth forecast of 3.9% for this year, which sits at the upper end of the central bank’s revised projection of 3% and 4% (from 6%-7.5% previously), and 4.7% for 2022,” the research house said.
TA Securities added that taking into account weak GDP performance in the first quarter of 2021, the economy expanded 7.1% y-o-y in the first half of the year.
But the ongoing lockdown in the country that aimed at fighting the spread of the diseases, it said could complicate the outlook for the second half of the year.