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The Star: Moderate growth more likely

By October 8, 2021November 2nd, 2023No Comments

According to Socio-Economic Research Centre (SERC) executive director Lee Heng Guie, (pic) Malaysia’s potential gross domestic product (GDP) growth is only about 3% to 4%, and the country is likely to record a growth of just 4% this year.


PETALING JAYA: It is a tall order to achieve the higher end of the 4.5% to 5.5% growth forecast envisioned under the 12th Malaysia Plan (12MP), considering the country’s moderating growth over the past decade.

According to Socio-Economic Research Centre (SERC) executive director Lee Heng Guie, Malaysia’s potential gross domestic product (GDP) growth is only about 3% to 4%, and the country is likely to record a growth of just 4% this year.

Hence, it would be challenging for the average GDP growth to hit 5.5% over the 2021-2025 period, he said.

“For Malaysia to grow between 4.5% and 5.5%, we have to do much more in terms of improving productivity, optimising our capital and resources, and achieving a higher adoption of technology to increase the value-add of our industries,” he said yesterday.

Lee was speaking during SERC’s quarterly economy tracker briefing for the July-to-September period. He expects Malaysia to see a cautious recovery in the second half of 2021, following an economic growth of 7.1% year-on-year (y-o-y) in the first six months of the year.

Lee pointed out that deeper economic scarring effects were felt in the third quarter (Q3) of 2021.

“A slew of key economic data, namely, exports, industrial output, wholesale and retail sales, as well as banks’ loan demand for the month of July and August, has generally shown either a sharp pullback in growth or reverted a decline in consumer spending, reflecting the scarring economic effects from the movement control order 3.0 restricted containment measures.

“The uptick in unemployment rate to 4.8% in July also weighed on consumer sentiment,” he said.

Lee expects Q3 GDP to be subdued or decline, although the contraction would be manageable.

Based on available data, he noted that discretionary consumer spending was off to a weak start in Q3.

“At the moment, consumer sentiment is still cautious.

“But we expect some measures in the upcoming Budget 2022 to boost sentiment,” he said.

Amid the soft consumer spending, Lee added that cash handouts, the Employees Provident Fund or EPF withdrawal schemes and loan moratorium have continued to provide temporary relief.

As for the business sector, Lee said the activities have been on the mend as more economic sectors reopen.

However, he pointed out that the industrial production and manufacturing sales performance declined in July.

The Business Confidence Index (BCI), as measured by the Malaysian Institute of Economic Research, has also dropped.

The latest BCI reading of 87.5 was below the optimism threshold of 100.

Despite such an environment, Lee thinks the country’s industrial production will likely rebound in Q4 of 2021.

As for exports, he said they would likely increase by a smaller magnitude of 8% y-o-y in the second half of 2021, as compared to a 30.2% growth in the first half.

This is due to the waning low base effect. For the full year, exports could grow by 18.2% from a contraction of 1.1% in 2020.

On headline inflation, Lee pointed out that it had cooled in July and August, largely due to the ebbing effect of the low base arising from fuel prices.

Headline inflation is expected to stay relatively stable in the remaining months of the year, taking the full-year estimate to 2.5% in 2021.

However, he cautioned that real price pressure remains.

“We saw a continued increase in the Producer Price Index.

“This may fit into higher consumer prices if the producer does not absorb the rising cost of raw materials and instead pass the extra cost to consumers because of their narrow profit margin,” stated Lee.

Commenting on Budget 2022, Lee said there was a need for several initiatives to curb elements of revenue leakage or harmful practices, as well as to address cross-border tax evasion in digital economy activities.

Among the possible initiatives is the implementation of the Special Voluntary Disclosure Programme for indirect taxes and the introduction of a tax compliance certificate as a pre-condition for tenderers to participate in government procurement.

Lee does not think the goods and services tax (GST) should be reintroduced under Budget 2022.

“Nevertheless, we think that the budget can make a policy statement on the GST, paving the way for its eventual implementation in 2023,” he said.

Lee also said that financial assistance and relief for affected households and businesses must be continued.

“Fiscal policy support is still needed as long as the outlook is uncertain and employment has not yet recovered fully, but clear guidance is called upon from policymakers to minimise risks to growth ahead.

“Immediate priority is to craft a swift economic recovery plan for generating growth, enhancing economic resilience, revitalising private investment, creating jobs, and reskilling and upskilling manpower,” he added.