KUALA LUMPUR: The road to recovery for Malaysia's economy is likely to protract as the country lacks the ammunition to go into a third month of lockdown in August, said Moody's Analytics.
This was reflected in Bank Negara Malaysia's revision of Malaysia's gross domestic product (GDP) growth projection of 3.0-4.0 per cent for 2021, down from 6.0-7.5 per cent previously.
"Our preliminary estimate for September-quarter yearly GDP growth reflects a downwardly revised view of economic conditions.
"We forecast full-year Malaysia's GDP of 4.7 per cent in 2021, but in light of the fluid Covid-19 situation in Malaysia, the annual GDP forecast will likely be subjected to further downward revision in September," said Moody's analytics associate economist Sonia Zhu.
Moody's Analytics said Malaysia's second-quarter GDP expansion of 16.1 per cent year-on-year (YoY) reflected the benefit of a low base comparison.
The arrival of the highly contagious Delta variant of Covid-19 was making it more onerous to keep infection rates under control.
The firm added that record-high case numbers and nationwide restrictions had undermined any economic recovery, as reflected in the 2.0 per cent contraction, quarter-on-quarter (QoQ) seasonally adjusted.
"As Malaysia grapples with a resurgent virus, authorities are looking to mass vaccination to stem the tide. As of August 13, 50 per cent of the population has received at least one dose of the Covid-19 vaccine," Zhu said.
Nonetheless, Moody's Analytics said Malaysia was well on track to achieve herd resilience by the end of 2021.
However, it said a nationwide lockdown that lasted through June and July would disproportionately impact domestic demand, particularly private consumption.
Although private consumption rose 11.6 per cent YoY, it was largely due to the favourable low base effect.
This component decreased by 11.5 per cent QoQ, while high-frequency indicators suggested that weaker retail activity in the second quarter both on a quarterly and yearly basis.
"Since May, the volume index of retail trade has decreased month on month seasonally adjusted, a reversal in the growth trend. The higher unemployment rate in June (4.8 per cent vs. May's 4.5 per cent) demonstrated the lockdown's impact on the labour market.
"Higher unemployment limits the spending power of households, putting further pressure on domestic demand," Zhu said.
Moody's Analytics said the lockdown also put a pause on business investment, despite the country's gross fixed capital formation growing 16.5 per cent YoY but dropping 2.7 per cent QoQ, suggesting that business confidence remained weak.
"The economy was showing signs of recovery thanks to resilient foreign exports and moderately good retail sales early in the second quarter, but a late surge in Delta-variant Covid-19 cases disrupted that momentum."
However, it said exports had been a lifeline for Malaysia and it should be the country's top priority to safeguard manufacturing and foreign trade to buoy the sluggish domestic economy in the second half of the year.
Moody's Analytics said Malaysia's June trade performance surprised on the upside with exports grew undeterred by the movement control orders.
"Exports of goods and services increased by 37.4 per cent YoY. Notwithstanding the lockdown and a 60 per cent production cap on manufacturing, both exports and imports recorded double-digit monthly growth in June from May."
Moody's Analytics said the high trade surplus, supported by higher global oil prices, had placed Malaysia among the top of its Asian peers in terms of trade performance.
"However, continued gains from net trade will crucially depend on the stability of global demand against the backdrop of the intensifying Delta-variant surge."