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Malaysia well-positioned for economic recovery in 2021

Malaysia well-positioned for economic recovery in 2021

14 Dec 2020

Malaysia is well-positioned for an economic recovery in 2021 as it is poised to leverage on the uptrend in external demand for commodities and manufacturing as well as its lower reliance on tourism and services exports compared to regional peers like Singapore and Indonesia, said CGS-CIMB.

The research house said other strengths that stand Malaysia in good stead are a bipartisan commitment to fiscal expansion and relatively ample policy room to enhance monetary accommodativeness.

“We reiterate our Gross Domestic Product (GDP) growth forecast of 7.5 per cent (for Malaysia) in 2021 (-5.0 per cent in 2020), which is above consensus projections,” it said in a note Monday.
The research house said the gradual rollout of the Covid-19 vaccine is a key catalyst for a global recovery in 2021, whereby the International Monetary Fund expects global GDP to rebound 5.2 per cent in 2021 from -4.4 per cent in 2020.

According to CGS-CIMB, Asia is set to be an outperformer, anchored by China which is projected to grow 8.2 per cent in 2021 (1.9 per cent in 2020), which bodes well for Malaysia, Indonesia, Singapore and Thailand.

Meanwhile, it said monetary policymakers have shown an inclination to look past near-term risks as Malaysia pivots to a path of economic recovery, pointing to a high likelihood of further policy easing.

“We believe the current Overnight Policy Rate (OPR) marks the floor of the current easing cycle and reiterate our end-2021 OPR forecast of 1.75 per cent.
“We do not expect monetary policy normalisation to begin until after 2021, when Malaysia’s output gap and inflation trends converge towards equilibrium levels,” it added.

Meanwhile, Maybank IB Research said it expects the Malaysian economy to grow 5.1 per cent next year after the contraction of 5.4 per cent in 2020.

It said the availability of Covid-19 vaccines starting the first quarter next year is an extra stimulus for the economy, plus potential upside from relocation foreign direct investment amid the supply chain security, resilience and regionalisation arising from the US-China tension, pandemic and Regional Comprehensive Economic Partnership (RCEP).

“The government has signed agreements to procure Covid-19 vaccines under the World Health Organisation’s (WHO) COVAX programme and obtain 12.8 million doses from Pfizer. These two agreements enable the vaccination of 30 per cent (9.6 million) of the 32 million population during the course of 2021.

“The government is expected to announce more vaccine purchase agreements with other pharmaceuticals companies, as the official target is to vaccinate 70 per cent of the population. To note, Malaysia is one of the countries on China’s priority list for Covid-19 vaccines,” the research house said.

However, Maybank IB said domestic political uncertainty and instability remained a major overhang as the government’s thin Parliament majority makes a snap general election ahead of mid-2023 a possibility.

The research house is also keeping an eye on the economic “scarring effect” of the pandemic which could well be currently masked or delayed as financial and fiscal relief measures are extended into 2021.

Source: Bernama