Construction, transportation, IT sectors to drive Malaysia’s economic growth, say economists

Despite recording a moderate Gross Domestic Product (GDP) growth of 0.7 per cent in the first quarter (1Q) of this year, analysts and economists remain confident of Malaysia’s future prospects in the next six to 12 months, suggesting that the construction, transportation and information technology (IT) sectors will be key drivers of economic growth going forward.

Bank Negara Malaysia (BNM) today announced that Malaysia’s economy grew moderately at 0.7 per cent in 1Q20 from 4.5 per cent in the same quarter last year, as the GDP growth was affected by Covid-19 and the implementation of the movement control order (MCO).

The central bank said the economic activity came to a sharp downshift with the implementation of the MCO on March 18, including international and domestic travel restrictions, limited work and operating hours and mandatory social distancing significantly curtailed economic activities.

Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the 1Q20 GDP growth was within the target range of one per cent projection.

“The prospects in the next six months will be highly dependent on how soon they (the government) can reopen the economy. This will hinge upon the evolution of new cases.

“Thus far, the infection curve has flattened. This has provided room for reopening of the economy. Therefore, we can expect the economy to start recovering as early as the fourth quarter of 2020,” he told Bernama.

Institute for Democracy and Economic Affairs (IDEAS) research manager Lau Zheng Zhou said the GDP growth reading came in within expectation because the economy in the first two months of the quarter was expanding quite steadily and that helped compensate the drastic fall in economic activity with the implementation of the
MCO.

“The recovery of the Malaysian economy is also dependent on, to a great extent, the recovery of the global economy.

“Malaysia has done remarkably well vis-a-vis other more developed countries in managing the pandemic and the economy is in a favourable position to seize the opportunities in picking up the global slack and promote a faster recovery,” he told Bernama.

Lau said the second half of the year is expected to be more positive than the first as the economy gradually recovers from the socioeconomic implications of the MCO.

“While we may still register a technical recession for the year 2020, it is likely that the recovery in the pandemic situation, including the easing of human restriction movement, will create positive spillovers and generate greater optimism in 2021.

“As it stands, short-term disruptions to businesses and uncertainties about the future have led to a record-high unemployment rate which, in turn, affect consumption and investment decisions,” he added.

He noted that some businesses continue to take a wait-and-see and cost-cutting approach to ensure survival while waiting for greater clarity before making new hiring and investment decisions.

“So, the government’s upcoming economic recovery plan is highly anticipated to provide guidance on future growth opportunities in addition to stop-gap financial assistance measures,” Lau said.

Meanwhile, Mohd Afzanizam said the construction sector is set to rebound, as the government will likely accelerate the implementation of infrastructure projects soonest possible to support economic growth.

“We have been seeing public investment remain weak and this is not good for private investment.

“Already, the Purchasing Managers’ Index (PMI) indices and Business Condition Index showed business sentiments are very pessimistic. So, the construction sector needs a catalyst,” he said.

Lau, however, said as the pandemic situation improves, sectors that were brought to a grinding halt by the MCO previously should see a rebound, such as the transportation sector.

But the compliance cost of observing the standard operating procedures (SOPs) and ongoing risk of a second wave of infection will continue to weigh on the sector’s
recovery.

“Global manufacturers have also learned from this incident that they should diversify their supply chain participation away from China, thus creating opportunities for local manufacturers to fill in the gap.

“While China has shown early signs in its economic recovery, it might not be enough to stimulate a global recovery, but at least if Malaysian manufacturers can attract foreign direct investments due to this supply chain reconfiguration, then we will recover faster than the rest as global demand picks up,” he added.

Prof Mohd Nazari Ismail of University of Malaya’s Faculty of Business and Accounting, said the IT sector may experience growth, especially in the sub-sectors related to online services.

He said the pandemic impact has showed that digital connectivity is critical to societal resilience and business continuity in times of crisis, and for these infrastructure providers, there would be higher demand for connectivity which may be counterbalanced by a series of negative shocks.

Moving forward, Lau said the government should consider increasing its development expenditure such as enhancing digital infrastructure, as well as transportation and logistics.

“The previous stimulus packages have been effective in stabilising the economy in the short-run, but the public sector should consider expanding its role in infrastructure spending as means to generate long-run benefits such as productivity growth and higher value-added output, which will also mean higher taxation capacity in the future.

“The government should also look into regional cooperation in addition to
implementing recovery policy individually.

“Asean member states should work together to abolish trade and non-trade barriers on medical and food supplies so that not only can these essential items be adequately produced; it could also create new market and increase economic activities,” he said.

Source: Bernama