Covid-19 will remain the nemesis of economic growth in 2021

KUALA LUMPUR: It’s the same old, the same old, 2021 brought mutated challenges, just as it did in 2020, with Covid-19 dominating the headlines, keeping life and livelihoods on the sidelines and taking economic boom down a bumpy road.

While Malaysia thought there would be green shoots of recovery in late 2020, the persistent virus that appeared from time to time, ranging from the Delta variant to Lambda and the latest one – Omicron, suggested the opposite.

In less than two weeks to 2021, then Prime Minister Tan Sri Muhyiddin Yassin announced new nationwide movement restrictions to curb the rising number of Covid-19 cases after Malaysia recorded 2,232 new cases and four deaths that day, the total of the Cases increased to 138,224 and 555 deaths since the pandemic started last year.

The movement restrictions, known as the Movement Control Order (MCO) 2.0, were reintroduced in Melaka, Johor, Penang, Selangor, Sabah and the federal territories of Kuala Lumpur, Putrajaya and Labuan from January 13-26, 2021.

The MCO 2.0 came with restrictions on movement between states and districts; Travel restrictions 10 km from one’s home and only five major industries – manufacturing, construction, services (including supermarkets, banks and health services), trade and distribution, and plantations – were allowed to operate, had sent fresh news once again to shake the economy.

With more than 4,000 daily cases, 37,396 active cases, and 1,700 reported deaths on May 10, Malaysia was facing the third wave of the pandemic and the then Prime Minister announced on 3/10 from May 12 to June 7, 2021.

Subsequently, a 14-day complete block was introduced from June 1 and a further two weeks until April 28.

To feed the ailing economy, Muhyiddin unveiled a four-step National Reconstruction Plan (NRP) on June 15, aimed at getting life back to normal by the end of this year.

The NRP is a four-phase exit strategy from the Covid 19 crisis and the gradual transition of the MCO phases.

On August 15, the government began easing restrictions, allowing more economic sectors to resume operations under the first phase of the NRP, which applies to fully vaccinated individuals.

No, thanks to the on-and-off MCOs carried out in the first three quarters, the economic effect was reflected in the gross domestic product (GDP), which in the first quarter shrank by 0.5 percent compared to the previous year (yoy) quarter 2021 (Q1 2021 ) of a growth of 0.7 percent year-on-year in the first quarter of 2020.

According to the Department of Statistics Malaysia (DoSM), GDP rose 16.1 percent year-on-year in the second quarter of 2021, which can be attributed to the low base in the second quarter of 2020 (-17.1 percent year-on-year).

In the third quarter of 2021, the country’s economy contracted 4.5 percent year-over-year, compared with a 2.6 percent year-over-year decline due to the reintroduction of nationwide containment measures during the reporting period.

Although the decline and impact of MCOs in 2021 wasn’t as severe as it was in the second quarter of 2020, when the country’s GDP slumped 17.1 percent, they nonetheless forced authorities to adjust the economic growth forecast.

Bank Negara Malaysia (BNM) had initially forecast growth of 6.0 to 7.5 percent for vaccination rollouts in 2021, but in August it was revised to 3.0 to 4.0 percent for the year.

BNM Governor Datuk Nor Shamsiah Yunus had said the revision of the annual growth forecast had been undertaken with the reintroduction of nationwide containment measures into account.

She said the 3.0-4.0 percent growth target was achievable as containment measures were gradually eased and activity would then pick up.

With regard to inflation, BNM had given assurances in November that the country would not stagflation despite rising global inflation.

According to the central bank, Malaysia’s headline inflation averaged 2.3 percent on November 12 and was projected to average between 2.0 percent and 3.0 percent for 2021, while underlying inflation, as measured by core inflation, averaged below 1.0 percent is forecasted cent for the year.

The BNM has held the Overnight Policy Rate (OPR) at 1.75 percent since July 7, 2020, and Moody’s Analytics expects the reference rate to remain unchanged before the central bank triggers a rate hike in the second half of 2022, given Malaysia’s economic outlook for look better the new year.

Meanwhile, Malaysia reached another record high of RM 202.6 billion or 26.5 percent more than in the previous year in October, breaking the RM 200 billion mark for the first time.

The DoSM data showed that October exports rose 25.5 percent yoy to RM 114.4 billion, imports rose 27.9 percent yoy to RM 88.2 billion and the trade surplus rose 17.9 percent rose to RM 26.3 billion year-on-year.

According to Ambank Research, exports rose 25 percent year-on-year to RM 1 trillion year-on-year, the fastest growth since 1998.

In terms of foreign direct investment (FDI), DoSM data shows that Malaysia continued to see inflows of RM12.8 billion in Q3 2021, compared to a net outflow of RM4.0 billion in the previous quarter.

To turn the clock back to early 2021, the government implemented four stimulus packages totaling RM 225 billion with a cash injection of RM 25 billion.

The four stimulus packages were namely the Malaysian economic and rakyat support package (PERMAI) in the amount of 15 billion RM, the strategic program to strengthen people and the economy in the amount of 20 billion plus) and the National People’s Well-Being and Economic Recovery Package (PEMULIH) worth 150 billion RM.

At the same time, 2021 also marks the first year of the 12th Malaysia Plan (12MP) 2021-2025, of which 400 billion for the 11th MP.

Unveiled on September 27th by Prime Minister Datuk Seri Ismail Sabri Yaakob, the 12MP contains three themes, four catalytic guidelines and 14 groundbreaking actions to lay a strong foundation for Malaysia’s future.

Ismail Sabri, who is also UMNO vice-president, was named Malaysia’s ninth Prime Minister on August 20 to replace Bersatu President Muhyiddin, who resigned on August 16 after losing a majority in parliament.

On August 27, Ismail Sabri announced the list of his “results-oriented” cabinet drafting, which includes 31 ministers, including 13 senior ministers under the previous administration, including senior minister with Minister of International Trade and Industry, Datuk Seri Mohamed Azmin Ali , Minister in the Department (Economy) of Prime Minister Mustapa Mohamed and Minister of Finance Tengku Zafrul Tengku Abdul Aziz.

As Malaysia continues to be exposed to an unchecked wave of Covid-19, Dewan Rakyat approved the motion on October 11 to raise the statutory debt limit from 60 percent to 65 percent of GDP.

Tengku Zafrul, who tabled two bills, namely the National Trust Fund Bill (Amendment) 2021 and the Temporary State Funding Measures [Coronavirus Disease 2019 (Covid-19)] (Amendment) October Bill 2021 stated that the first application was aimed at funding the four rescue and stimulus packages – PERMAI, PEMERKASA, PEMERKASA Plus and PEMULIH – which required an additional allocation of RM 27 billion.

He said the second was to raise the ceiling for the Covid-19 fund (KWC-19) from RM 65 billion to RM 110 billion.

Tengku Zafrul reportedly said in July that Malaysia’s budget deficit is expected to rise to 6.5 to 7.0 percent of GDP in 2021, from 6.0 percent previously targeted, after taking into account the latest stimulus packages announced by the government.

To get Malaysia out of the economic doldrums, the country presented the largest budget ever in 2022 of 332.10 billion RM on October 29, which exceeded the 2021 budget of 322.54 billion RM, the majority of which was spent on healthcare and education flows.

A one-off Cukai Makmur (wealth tax) was introduced in the 2022 budget, under which companies with an income of over 100 million RM are taxed at 33 percent instead of a flat rate of 24 percent for the 2022 assessment year.

Income from foreign sources received in Malaysia would also be taxed under the budget starting January 1, 2022.

Regarding the 2022 budget impact on government ratings, Winson Phoon, head of fixed income research at Maybank Kim Eng, expects Fitch to maintain its BBB + / stable outlook and Moody’s to maintain its A3 / stable outlook for Malaysia. But the only risk is S&P, which has an A- / Negative outlook for Malaysia.

“The key question is whether Malaysia’s medium-term fiscal consolidation is big enough or fast enough to avoid a rating downgrade, which I think will be tight,” he said in a webinar on November 3rd.

As Malaysia tried to restore economic growth, the unexpected appearance of the new variant B.1.1.529, better known as Omicron, paved another speed bump along the recreational road.

On November 30, senior defense minister Datuk Seri Hishammuddin Tun Hussein announced that Malaysia would have to postpone its transition to the endemic phase of Covid-19 due to uncertainties related to the Omicron variant.

However, Ambank Research still left its full-year 2021 GDP growth forecast at around 3.5 percent, with an upward trend of 4.0 percent at best.

Looking ahead, the improvement in manufacturing continues to be supported by the reopening of economies, the high performing electrical and electronics, glove maker, petroleum and chemical subgroup, robust external demand, and increased commodity prices.

“We are still looking for factors that seriously threaten recovery progress and, if they occur, could pull the economy back into recession,” said Research House’s chief economist and chief researcher, Dr. Anthony Dass, and the economist Muhamad Farid Anas Johari in a note recently.

The Treasury Department expects GDP to grow between 3.0 and 4.0 percent in 2021 and between 5.5 and 6.5 percent in 2022, aided by a significant improvement in world trade, stabilized commodity prices, the containment of the pandemic and gradual improvement the consumer and business sentiments.

After taking into account revenue growth and expenditure needs, the budget deficit is expected to decrease to 6.0 percent of GDP in 2022.Bernama

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