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Malaysia’s economic recovery to face challenges in fourth quarter

2020-11-16

PETALING JAYA: While Malaysia recorded an improved gross domestic product (GDP) of -2.7%, for the third quarter of 2020, driven by a recovery in private consumption and external demand, the third wave of Covid-19 and the resulting movement restriction orders will likely challenge fourth-quarter growth.

In a note, OCBC Research said it still sees continued recovery, but the pace of uptick is likely to be hurt.

“The resurgence of pandemic on the ground would dent the pace of recovery in Q4. While the restriction orders are a lot less stringent than in Q2, the psychological factor at play remains there and would curtail private consumption recovery.

“The silver lining is that the bulk of economic activities – including manufacturing facilities – have stayed largely untouched. Our baseline expectation is thus for growth to come in at -1.5% year on year (yoy) in Q4, marking some improvement from Q3 but at a less robust pace of recovery than before. Hence, for the year as awhole, growth would likely come in at around -5.1% yoy,” it said.

In terms of policy reaction, the research house opined that the better-than-expected outturn in Q3 GDP would have nonetheless given the central bank more room to wait and see how the Q4 economic recovery pans out.

“Hence, it does not look like Bank Negara Malaysia (BNM) will be in a hurry to cut rate just yet in its upcoming meeting on Jan 19-20.”

Likewise, CGS CIMB Research said the ongoing implementation of CMCO 2.0 since Oct 14 is likely to keep Malaysia’s economy in contraction in Q4’20.

“We reiterate our full-year GDP projection of -5% in 2020 while BNM has moved its point forecast guidance for 2020 to the weaker end of its -5.5% to -3.5% forecast range.

“Looking ahead, we are in agreement with BNM that economic growth is likely to recover strongly in 2021, with the central bank revising its GDP forecast to between 6.5% and 7.5%, from 5.5% to 8% (CGS-CIMB: +7.5%), on the back of fiscal and monetary stimulus tailwinds.”

It added that while the economy will likely trail its pre-Covid-19 trend until 2021, it thinks the recent BNM policy statement indicates that current monetary settings are adequately supportive.

As such, CGS CIMB is reiterating its end-2021 Overnight Policy Rate (OPR) forecast of 1.75%, implying an extended hold in the benchmark interest rate.

Malaysian Rating Corp Bhd (MARC) believes the economy will trend sideways in the coming months given that CMCOs are being deployed in a majority of states while international borders remain closed.

“There is hope for a recovery in domestic demand during the CMCO period, although prospects remain somewhat muted. Retail footfall appears to be in a downward trend since October 2020 despite considerable improvements over the preceding quarter, suggesting a shift towards online purchases,” it said.

In addition, it said it is cautiously optimistic with the recent news reports about the success of Pfizer’s vaccine trial.

“:Although this is a very encouraging development, mass rollouts of the vaccine, which will need regulatory approval, are not expected anytime soon. The fact that the vaccine must be stored at an extremely cold temperature (-70 degrees Celsius or below) will raise concerns about its viability for a tropical country such as Malaysia.”

It pointed out that the current wave of infections and widening of CMCO have hampered prospects of recovery for the remainder of the year, and if the current scenario of triple-digit daily infections continues for much longer, it could be quite some time before domestic demand returns as an economic growth driver.

As such, MARC’s full year GDP forecast for 2020 currently stands at -4.5% and -5.5%, before rebounding to between 6.3% and 6.7% in 2021.

Private consumption recovery could be curtailed by the third wave of Covid-19 infections and the subsequent CMCOs. – REUTERSPIX

Source: The Sun Daily

 

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