Malaysian GDP forecast downgraded to 0%

A zero GDP growth is likely to lead to high unemployment or no new places for those entering the job market. (Bernama pic)

PETALING JAYA: Fitch Solutions has downgraded Malaysia’s GDP forecast for the year from 4.9% to 0%.

Worryingly, it noted further downside risks to its forecast given the “high level of political risk” since the beginning of the second half of the year, and the risk that the outbreak could still worsen over the coming months, which it said could further affect the economy’s performance. A zero GDP is when the economy is neither increasing nor declining. It may be marked by high unemployment or no job growth.

In a report today, the research arm of international ratings agency Fitch Group said it made the revision as it did not expect nationwide lockdowns to run into the second half of the year.

“In particular, the daily caseloads have not improved despite lockdown measures imposed nationwide and continue to set new records throughout the first half of August,” it said.

The revision was also due to the country’s economic performance in Q2 2021 which was “far below our previous expectations”.

Released last week, the data showed the economy slid 2% quarter-on-quarter and 16.1% year-on-year because of Covid-19 movement restrictions.

“The domestic demand outlook has darkened considerably, and we now expect private consumption to do worse than in 2020, while investment will likely only show a marginal improvement,” said Fitch Solutions in the report.

“With net exports also likely to prove a slight detractor from headline growth due to external demand woes arising from Asia’s struggle with Covid-19 in general, government consumption is now the only source of support for the economy in 2021.

Based on its calculations, private consumption has contracted 11.5% q-o-q, compared to the five-year average q-o-q growth rate of 2.4% pre-pandemic for Q2. Fitch Solutions said this demonstrates the “severe impact” the third wave of infections has had on the key growth engine of the economy, private consumption, which accounts for around 70% of GDP.

While vaccinations are accelerating, Fitch Solutions said the country is unlikely to achieve herd immunity before the end of the year, quashing any prospects of a late economic surge in 2021.

source: FMT