The Fitch unit said in a note, Malaysia's daily COVID-19 cases have slipped from a peak of 24,599 on Aug. 26 to 6,210 on Oct. 21, and a downtrend appears to be entrenched.
The government has already re-opened the tourist resort of Langkawi, and international travel rules were relaxed with effect from Oct. 11, it added.
"In view of these positive developments, we at Fitch Solutions have revised upward our 2021 real GDP growth forecast (for Malaysia) from 0 percent to 1.5 percent. Our forecast for 2022 remains at 5.5 percent for now, with the economy likely to post a stronger recovery thanks to higher vaccination rates," it said.
Fitch Solutions noted, its previous forecasts assumed that Malaysia's COVID-19 restrictions would not be removed until daily cases fell below 4,000, but the improving situation means that the Malaysian government will probably be able to honor its pledge to re-open the economy fully by the end of October.
Removing domestic restrictions will provide a strong boost to the retail and services sector, due to higher food traffic in malls and other retail and food and beverage venues over the remainder of the year, it said.
The research house has also raised its forecast for Malaysia's private consumption to 0.5 percent from -2 percent previously, as the country's private consumption in the third quarter is likely to improve with restrictions gradually lifted, and the fourth quarter economy is likely to perform better after the economy is fully re-opened.
"This revision is a preliminary adjustment and we will await a clearer indication as to the health of the economy with the release of the third quarter real GDP growth results on Nov. 12," it said.
It said, Fitch Solutions continues to caution that downside risks remain, particularly the possibility that the removal of restrictions will result in a surge in infections that forces the government to pause reopening plans.
"In neighboring Singapore, for example, the government was forced to re-implement tighter restrictions in late September. If the Malaysian authorities are forced to abandon their re-opening plan, this would delay the economic recovery into 2022," it said.
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