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CLICK TO ENLARGEPETALING JAYA: Despite the challenging business and investment landscape, the country’s gross fixed capital formation (GFCF), which is the second-largest component of gross domestic product (GDP), is expected to stage a recovery this year.
However, the resurgence of the Covid-19 and political uncertainty could affect investment sentiment, which, in turn, may impact the performance of GFCF.
Economists are cautiously optimistic that GFCF would see a positive growth this year.
GFCF measures the net increase in fixed capital. This includes spending on land improvements; plant, machinery and equipment purchases; the construction of roads, railways, private residential dwellings, and commercial and industrial buildings.RAM Rating Services Bhd senior economist Woon Khai Jhek said GFCF is expected to pick up this year.
According to the Department of Statistics, GFCF, with a 20.9% share to the total economy, contracted 14.5% to RM281.1bil (constant prices) last year as compared to 2019.
The contraction was mainly due to the pandemic which affected the investment of fixed assets for all economic activities. The decline in 2020 was the biggest contraction recorded since the 1998 Asian Financial Crisis in which GFCF declined 43%.
The declining GFCF was also experienced by major economies and regional countries including Singapore, Thailand and Indonesia.
RAM Rating Services Bhd senior economist Woon Khai Jhek said GFCF is expected to pick up this year.
This is in view of the nascent recovery in economic activity amid transitory setbacks along with clearer prospects in the midst of the rapid vaccine rollout, which should help buoy investment sentiment this year,
He said the impact from the widespread disruption and stop-work order of construction activity, which had significantly weighed on GFCF last year, is also not expected to be as prominent this year.
“GFCF for structure – which largely reflects construction-related works – took a steep dive last year as the tight movement control order (MCO) restrictions significantly hindered public infrastructure and property construction works.Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said there is likelihood for higher GFCF this year.
“As more worksites become compliant with government regulations while operational efficiency under strict standard operating procedures (SOPs) improves, this will alleviate the pressures exerted on overall GFCF this year,” Woon he told StarBiz.GFCF showed some promising signs of recovery in the first quarter (Q1) of 2021 as it contracted at a much slower pace of 3.3%, after declining by 11.8% in the fourth quarter of 2020.