Fitch unit reaffirms lower growth forecast for Malaysia on the back of MCO 3.0

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The unit of Fitch Ratings said the latest lockdown will likely have a severe negative impact on employment and result in yet more spare capacity, weighing on domestic demand. — Picture by Choo Choy May
The unit of Fitch Ratings said the latest lockdown will likely have a severe negative impact on employment and result in yet more spare capacity, weighing on domestic demand. — Picture by Choo Choy May

KUALA LUMPUR, May 12 ― Fitch Solutions reaffirmed today its 2021 real growth domestic product (GDP) growth forecast for Malaysia at 4.9 per cent after accounting for the risk of another nationwide lockdown announced on May 10, even as official estimates put the trajectory higher.

The unit of Fitch Ratings said the latest lockdown will likely have a severe negative impact on employment and result in yet more spare capacity, weighing on domestic demand.

“While our forecast already accounts for the possibility of yet another nationwide lockdown, we still highlight downside risks emanating from possible further surges in infections, another round of lockdown measures and the slow pace of vaccinations,” it said in a statement.

The country’s first quarter growth figures showed a 0.5 per cent year-on-year contraction, comparatively poor to other regional economies including Singapore, which posted a 0.2 per cent year-on-year expansion.

The Fitch unit attributed the poor growth data to the resurgence of Covid-19 cases in Malaysia.

But seasonally-adjusted basis quarter-to-quarter data showed the economy expanded by 2.7 per cent, according to the Department of Statistics.

Fitch Solutions predicted any additional government spending is unlikely to provide meaningful support, with net exports likely to be the most significant growth driver once again in 2021.

It predicted imports to fall materially amid lower demand.

“Domestic demand is likely to perform poorly, with unemployment climbing over the coming months, weighing on disposable incomes, while spare capacity will likely curtail investment,” it said.

“Government consumption will remain muted given existing fiscal constraints. The key source of support will once again be net exports, driven primarily by shrinking imports as demand falls.”

Malaysia enforced a second MCO for several key states and districts in January but extended in various forms throughout the rest of the quarter, as Covid-19 cases began reaching four digits with the highest rate having breached the 5,000 mark.

Fitch Solutions said the second partial lockdown weighed on private consumption, a key growth engine accounting for around 70 per cent of GDP.

The second MCO took away 0.9 percentage points from the headline figure.

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