KUALA LUMPUR: The Malaysian Rating Corporation Bhd (MARC) has maintained its forecast for Malaysia's gross domestic product (GDP) growth of 3.9 per cent for the full year 2021.
The rating agency foresees a slight contraction of GDP in the third quarter (Q3) of 2021, given the economy is still reeling from intermittent lockdowns and the dissipating base effect.
"Firms' operating capacity constraints saw the manufacturing PMI (Purchasing Managers' Index) remaining in the contraction zone (July 2021: 40.1).
"Challenging operating conditions such as supply chain disruptions would continue to weigh on business investment.
"Consumer sentiment hovered below the optimism threshold, mainly attributable to the elevated unemployment rate (Q2 2021: 4.8 per cent).
"Even so, an early resumption of economic activities would be the saving grace in avoiding a double-dip recession in the third quarter (Q3) 2021," it said.
MARC expects headline inflation to ease to below 3.0 per cent in Q3 2021 as the base effect dissipates.
"We opine that Bank Negara Malaysia will hold the key overnight policy rate (OPR) at a historical low of 1.75 per cent, at least for the rest of the year.
"The current monetary settings are sufficiently accommodative.
"Lowering the OPR will likely result in banks becoming more cautious in lending, more so following the announcement of a repayment moratorium," it said.
Meanwhile, MARC said the marked revenue shortfalls and increased expenditure would cause a fiscal deficit to breach the government's target of 6.0 per cent of GDP in 2021.
It said it expects the fiscal deficit to come in at least 6.5 per cent of GDP for the year.
"The narrowing policy space and limited fiscal resources could push the government to temporarily raise the self-imposed statutory debt ceiling again, this time to 65 per cent," it said.