Tall Order, But It's Possible For Malaysia To Achieve 9% GDP Growth In 2021: Economists Ee Ann Nee

A 9% gross domestic product (GDP) growth for Malaysia in 2021 is achievable assuming the absence of a crisis and movement control order (MCO) effects, according to economists.

In its World Economic Outlook report released on Tuesday, the International Monetary Fund (IMF) projected that Malaysia’s economy will expand strongly by 9% for 2021, a sharp recovery from -1.7% estimated for 2020.

“It (9% growth) is quite possible assuming the economy would go back on track very soon. However, this assumption would be predicated on how quick the MCO will be lifted and the ensuing stigma post-MCO,” Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid told SunBiz.

He said the amount of fiscal and monetary stimulus measures introduced by the federal government and Bank Negara Malaysia (BNM) are huge, so the impact can be significant if the economy can operate normally in the near term. Thus far, the number of new cases has been quite contained and the recovery rate is assuring.

“The global equity markets in recent times have been buoyed by this fact, and talk of reopening the economy in the US by May is gaining momentum. Coupled with a low GDP base this year, the 9% forecast growth in 2021 by the IMF seems logical,” he added.

If history is any guide, he pointed out that the Malaysian economy went into recession in 2009 with GDP declining by 1.5%.

With two fiscal stimuli introduced in Nov 2008 and March 2009 totalling RM67 billion, while the Overnight Policy Rate and statutory reserve requirement were cut from 3.5% and 4% to 2% and 1% respectively during the same period, Malaysia’s GDP growth shot up to 7.4% in 2010.

“Nonetheless, the path to recovery is not really clear as we are dealing with a pandemic which is very much dependent on few factors such as the state of a vaccine and therapy being developed, healthcare capacity, strict adherence to MCO and government responses.”

Despite these, Afzanizam said Bank Islam’s base case GDP forecast for the country is a 1.5% decline for this year and a 3.5% growth in 2021.

“We are quite conservative in light of the nature of shocks,” he explained.

Meanwhile, Socio-Economic Research Centre executive director Lee Heng Guie noted that IMF’s forecast can be mirrored to the global financial crisis period where Malaysia’s economy fell 1.5% in 2009, but rebounded by 7.4% in 2010, showing “almost the same magnitude”.

“Malaysia can show a strong rebound next year, in line with what IMF projected for advanced economies (4.5%), global growth (5.8%) and China (9.2%) in 2021,” said Lee.

However, he called the forecast a tall order given that it is a strong number that Malaysia has not achieved before.

“For us to grow close to double (9%) is ‘fantastic’.

“There’s so much of uncertainty and it depends on how long the pandemic will last. That is key,” Lee said, adding that he expects Malaysia’s economy to see a 3% decline this year.

Affin Hwang Capital believes the “extreme uncertainty” around IMF’s global growth forecast may prompt the Fund to make further downward revisions to its global GDP growth forecast in 2020 and possibly next year.

“We believe that no emerging market, including Malaysia, can escape the downside risks of global recession this year, as advanced economies fall into recession,” said Affin Hwang, which expects Malaysia to post a 3.5% decline in its economy for 2020.

The research house said improving on Malaysia’s economic fundamentals will likely be the best option to ensure that country’s sovereign rating outlook be kept as stable by international rating agencies.

“In the months ahead, we believe sovereign rating agencies will continue to monitor Malaysia’s macroeconomic developments, focusing on the country’s economic growth, fiscal deficit and government debt, from the impact of Covid-19 and low global oil price.”

BNM has lowered its GDP growth forecast to -2 to 0.5%, while Malaysia’s 2020 fiscal deficit target is expected to rise by 0.7 percentage points to 4.7% of GDP, after the total stimulus packages worth RM260 billion announced by the government.

This article was published in The SunDaily dated 15 April 2020. Republished with permission.