KUALA LUMPUR: Malaysia may have slipped to its worst quarter of 2021 during the July-September period but livelier economic activities since then are putting it on a firmer recovery in the final quarter and next year.
Economists contacted by the New Straits Times expect the country's gross domestic product (GDP) to contract between two per cent and five per cent in the third quarter (Q3).
But Q4 should see the economy returning to growth path after a 0.5 per cent contraction in Q1 followed by a massive 16.1 per cent expansion in Q2.
Bank Negara Malaysia is scheduled to announce the Q3 GDP numbers today (November 12).
Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid expects the GDP to contract 3.3 per cent in Q3.
He said key data points such as the Industrial Production Index, Index of Services, crude palm oil production (CPO) and Malaysia Construction Work Done were all declining at a rate of 1.1 per cent, 7.5 per cent, 10.8 per cent and 21.0 per cent respectively during the quarter.
"This was primarily due to the Movement Control Order (MCO) 3.0 implementation whereby the key states such as Selangor, Johor and Wilayah Persekutuan were all in Phase 1 until mid-September which has severe effects on economic activities," he told the New Straits Times.
Afzanizam, however, said Bank Islam expected economic activities to be more lively in the final quarter of the year. This is simply because of the uplifting of the interstate travel ban as the country has achieved vaccination rate of more than 90 per cent for adult population.
He added that Malaysia's Q4 GDP could come in positively at around 2.0-3.0 per cent.
"We have already seen some improvement in the economy. For instance, the Consumer Sentiment Index and Business Condition Index have risen to 101.7 (Q2 2021: 64.3) and 97 (Q2 2021: 87.5) points respectively in Q3 2021.
"Similarly the PMI (Purchasing Managers Index) has gone up to 52.2 points during October from 48.1 points in the preceding month, suggesting manufacturers sentiment have become more sanguine about the economic outlook," he added.
Hong Leong Investment Bank Bhd (HLIB) expects the economy to contract 4.3 per cent in Q3, lower than consensus forecast of a 1.9 per cent contraction.
"Growth is expected to weaken across all sectors as most states were still in Phase 1 and 2 of the NRP (National Recovery Plan) with tighter restrictions during the first half of the quarter," HLIB said.
The firm said going into Q4, the growth trajectory is anticipated to strengthen with the resumption of most economic activities, including the reopening of domestic and international borders with vaccinated travel lanes.
"Pending the release of the actual Q3 2021 GDP print, we maintain our 2021 forecast at 4.1 per cent year-on-year," it added.
Meanwhile, Putra Business School associate professor Dr Ahmed Razman Abdul Latif expects the GDP to contract 2.7 per cent in Q3, before recovering in Q4.
"The main drivers for the GDP growth in these two quarters are from the reopening of domestic economic sectors as many states have transition to Phase 4 of the NRP. The recovery phase also boosted by overall global economic demand especially from Malaysia's main trading partners especially China, the US and Asean countries," he added.