SERC: Worst over for Malaysian economy, Covid-19 vaccinations key to recovery amid uneven growth

PETALING JAYA: The movement control order 3.0 (MCO 3.0) will drive scarring effects on consumer sentiment into the current quarter (Q2’21) while the slow rate of Covid-19 vaccinations puts economic recovery at risk, according to the Socio-Economic Research Centre (SERC).

Executive director Lee Heng Guie (pix) said the worst is over (in terms of the economy) in Malaysia. However, the nation continues to see uneven growth in economic sectors and vaccination is the key to economic recovery.

“The ongoing national immunisation programme holds the key to economic recovery and to lift consumer sentiment. Up to now, only 1.9% of Malaysians have completed two doses of the vaccination. Although the number of vaccinations administered daily has started to pick up, the slow rate puts economic recovery at risk,” he said at the SERC Quarterly Economy Tracker (January-March 2021) virtual media briefing today.

He added that the six districts in Selangor under MCO 3.0 accounted for 21.9% of the country’s gross domestic product (GDP), while Kuala Lumpur makes up 16.4%.

Should the country enter the “fourth wave” of the Covid-19 pandemic, that will prompt more targeted MCO/EMCO and have prolonged scarring effects on economic and business activities.

“Amid continued scarring effects from a prolonged pandemic and less restrictive movement restrictions in the early months of 2021, the Malaysian economy should continue to recover in the coming quarters. As long as the movement restrictions are less restrictive, the chances of a complete stalling of economic recovery are unlikely,“ Lee said.

He said a turnaround in growth will begin in the second quarter but whether the magnitude of economic growth will increase in the second half of the year depends greatly on the progress made in the immunisation programme.

SERC maintains its GDP growth estimates of 4.0% (base case) and 6.0% (upside) for 2021 amid continued economic scarring effects from the movement restrictions and interstate travel ban.

Lee said consumer spending has rebounded as sentiment improves on the vaccination programme, albeit at a slow pace. This is partly helped by cash handouts, the withdrawal of Employees Provident Fund savings, and targeted repayment assistance. The pent-up demand and drawdown of precautionary savings were unspent during the movement restrictions.

The export sector is set to remain strong, on the back of buoyant global demand for semiconductors, rubber products, chemicals, transport equipment, and palm oil products.

“There is uneven growth in the services sub-sectors. The main headwind is strict interstate travel restrictions, the reopening of the border will likely be a gradual process towards year-end, and, hence, the persistent weakness in tourism, aviation as well as retail and hospitality sectors will hold back the recovery of the overall services sector,” Lee said.

Retail sales have declined for five months in a row since October 2020 with sales falling in all types of specialised stores, except for food, beverages and tobacco, as well as information and communication equipment. Sales were dampened by the imposition of MCO 2.0 and subsequent CMCO amid still-weak consumer confidence.

“Nevertheless, overall wholesale and retail trade is gradually returning to pre-pandemic level. Passenger car sales have performed well, buoyed by several new models launches and aggressive promotional campaigns as well as sales tax exemption,” Lee said.

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