The gross domestic product (GDP) of Malaysia is expected to grow by 0.5% quarter-on-quarter during the first quarter of 2021 (Q1 2021), a reversal of the 0.3% contraction registered in the fourth quarter of 2020, according to Moody’s Analytics.
It said that while the country faced a severe resurgence of COVID-19 cases which peaked in February 2021 as well as tighter restrictions that dampened domestic consumption’s revival, the economy benefitted from a strong trade position, reported Bernama.
Supported by recovering global demand for manufactured goods, exports were also bolstered by a hike in global demand for semiconductors, according to Moody’s Analytics.
“We expect gains from the pickup in external demand to have largely driven the March-quarter growth,” it said in a note as quoted by Bernama.
In May 2020, Bank Negara Malaysia (BNM) left its benchmark policy rate unchanged at 1.75%, the lowest in over 10 years.
Malaysia’s industrial production increased by 9.3% year-on-year in March 2021, while manufacturing output rose 12.7% year-on-year and electricity climbed 10.3% year-on-year. Mining output, on the other hand, contracted 1.9% year-on-year.
“It is true that sizeable gains in exports over the March quarter more than likely offset the softness in domestic consumption as producers benefitted from recovering global demand for manufactured goods, while the net position was bolstered by global demand for semiconductors and recovering commodity prices,” said Moody’s Analytics.
“But this also reflects an incomplete and unsustainable revival.”
With substantial monetary and fiscal stimulus provided since early last year, Moody’s Analytics noted that policymakers are running out of space for further accommodation.
“Delivering another rate cut amid the resurgence will not only gain limited traction in cushioning demand, but it runs a higher risk of triggering capital outflows, which emerging markets are susceptible to,” it said.
“This should be an additional risk that BNM will want to guard against.”