Malaysia's GDP likely to grow by 0.5 per cent in Q1 2021 - Moody's Analytics

It said although Malaysia has contended with a severe resurgence in COVID-19 cases that peaked in February and tighter restrictions that dampened the revival in domestic consumption, the economy has benefitted from a relatively strong trade position.

Exports have been supported by recovering global demand for manufactured goods and bolstered by the surge in the global demand for semiconductors.

"We expect the gains from the pickup in external demand to have largely driven the March-quarter growth," it said in a note today.

Bank Negara Malaysia (BNM) kept its benchmark policy rate unchanged at 1.75 per cent in its May 2020 announcement -- the lowest level in more than 10 years.

In March 2021, Malaysia's industrial production rose by 9.3 per cent year-on-year (y-o-y), manufacturing output grew by 12.7 per cent y-o-y and electricity rose by 10.3 per cent y-o-y, while mining output contracted by 1.9 per cent y-o-y.

"It is true that the sizeable gains in exports over the March quarter had more than likely offsetted the softness in domestic consumption as producers benefitted from recovering global demand for manufactured goods, while the net position is being bolstered by the global demand for semiconductors and recovering commodity prices.

"But this also reflects an incomplete and unsustainable revival," it said.

Moody's Analytics also noted that with substantial fiscal and monetary stimulus already provided since early 2020, policymakers are also running out of space for further accommodation.

"Delivering another rate cut amidst the resurgence will not only gain limited traction in cushioning demand, but it runs a higher risk of triggering capital outflows, which emerging markets are susceptible to.

"This should be an additional risk that BNM will want to guard against," it added.

On Tuesday, May 11, BNM is scheduled to deliver its Economic and Financial Developments in the First Quarter 2021 report.