2021 growth forecast too optimistic, says economist

Economist Yeah Kim Leng says economic growth might not reach the surge expected by international agencies as Malaysia’s export sector will be weighed down by subdued global demand.

PETALING JAYA: An economist has voiced doubt that Malaysia’s gross domestic product (GDP) will grow in 2021 by as much as the government expects.

Commenting on a speech Finance Minister Tengku Zafrul Abdul Aziz made last week, Yeah Kim Leng of Sunway University said the growth forecast of between 6.9% and 7.5% was “a bit too optimistic”.

Tengku Zafrul said he was citing forecasts from international agencies.

Yeah said the estimates were akin to the rebound projections in 2010 after the global financial crisis.

Yeah Kim Leng

“To achieve the predicted growth, both global and domestic supply and demand conditions and activity levels will have to normalise by the end of this year and sustain through 2021,” he told FMT.

But with many countries still struggling to contain Covid-19, this normalisation would be unlikely, he said.

“Without a pickup in global demand, Malaysia’s external sector will not be able to give the economy the required tonic to stage a strong recovery and reach full capacity quickly.”

Nevertheless, he said, the GDP growth in 2021 would “easily be positive” because domestic demand was picking up due to Malaysia’s successful containment of the virus.

But he added that it might not reach the surge envisaged by international agencies since the country’s sizeable export sector would be weighed down by subdued global demand.

Yeah said he expected the government to pump-prime the economy to boost domestic demand through projects, financing schemes and other initiatives.

“This will likely be debt-based through the issuance of ringgit-denominated government bonds where local investment appetite and capacity remain relatively intact,” he said.

“A sizeable chunk of the deficit financing will likely be sourced from higher dividend contributions from Petronas and other revenue-surplus government-owned companies.”

Despite this, he said, Malaysia’s fiscal deficit for 2021 would probably ease to between 4% and 5% of GDP from between 6% and 7% this year.

Both these deficit levels were well within the country’s debt financing capacity, he added.

In the long run, he said, the government could not avoid accelerating economic reforms, restructuring the economy and shifting to high-value economic activities based on digital capabilities and high skill levels.

Shankaran Nambiar of the Malaysian Institute for Economic Research said the 2021 percentage figures would look good only because of this year’s low GDP base.

“It is not that there will be a lot of growth suddenly happening in 2021,” he said. “The government has limited fiscal space. So it cannot go on pump-priming the economy.”

Nambiar said Putrajaya would not want to increase self-imposed limits for debt beyond acceptable levels.

“If it does so, it might run the risk of losing favour from rating agencies,” he said.

“There is also the problem of raising funds.”

He said the government should focus on helping people keep their jobs or creating opportunities that would be conducive for employment-intensive industries.

“The subsequent phase should see mega infrastructure projects but caution should be exercised.

“We do not want projects that will largely employ foreign workers or projects where the benefits will not be domestically retained. Nor do we want projects that will contribute to job losses.”

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