Expect Economy To Kick Off In Q4 Says Think Tank

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The Socio-Economic Research Centre expects headline inflation to moderate below 4% in the near term.PETALING JAYA: The fourth quarter of the year is expected to show positive economic growth as vaccination rates increase and states progress through the phases of the national recovery plan, a socio-economic think tank said today.
Presenting their quarterly economic tracker, Socio-Economic Research Centre (SERC) executive director Lee Heng Guie said with the recurring lockdowns this month punctuating the low-base effect from the previous quarter, the upcoming months will thus be important for economic recovery.
He said continued cash aid and loan deferments providing temporary cash flow relief will release some pent-up demand but weak recovery in the labour and job market will still slow down consumer spending in the short term.
Political uncertainty, meanwhile, will continue to be a drag on investor confidence, he said.
The SERC is maintaining their original full-year GDP forecast of 4% subject to downside risks. The think tank also forecasts some growth for Q2, but lower than previously expected due to the effects from the full lockdown in June.
“I am also expecting a small positive growth in Q3, but the real kicker for economic growth will be in Q4, with the assumption based on higher vaccinations and with states moving from Phase 2 to Phase 3 of the recovery plan,” Lee said.
He added that the lockdowns and the 60% maximum worker capacities for manufacturing sectors have hampered the export-driven industries amid their relatively strong recovery in the first five months of 2021, when 31.1% growth was recorded year-on-year.
“With divergent recovery between advanced and regional economies, exports are expected to grow by 15.8% in the first half before slowing to an estimated 6.6% in the second half of the year.”
On inflation, Lee expected headline inflation to moderate below 4% in the near term, adding that inflation would have otherwise been higher without continued price subsidies for RON95.
SERC estimates inflation to increase between 3% to 4% in 2021 (-1.2% in 2020).
On the overnight policy rate by Bank Negara Malaysia (BNM), he does not expect further reductions on interest rates, adding that this should be reserved for future shocks.
Lee urged the government to ratify the Regional Comprehensive Economic Partnership (RCEP) as soon as possible to prepare local businesses for the large market.
He said the trade agreement may help cushion some of the ill economic effects from Covid-19 due to Malaysia being an export-driven economy.
“Ratifying it will also send out a signal to international investors that Malaysia is indeed open to such free trade agreements,” he said.
Most businesses SERC had surveyed viewed openness to free trade agreements as positive and important for growth, he added. - FMT

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