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Malaysia’s unique position will enable bounce back

Malaysia’s unique position will enable bounce back

30 Jun 2021

HSBC Group believes Malaysia is uniquely placed to bounce back from the impact of the Covid-19 pandemic despite recent challenges that have restrained domestic growth.

HSBC Holdings plc co-head of Asian economics research, Frederic Neumann, said despite the World Bank tempering its earlier growth projection from 6% to 4.5%, this was only a temporary drag.

“The growth is sitting right now at 4.1% but we have forecast 5.4% growth for 2022 because we believe Malaysia can bounce back due to various reasons,” he said at a press briefing on HSBC’s Asian Outlook 2H for 2021.

Neumann said among the reasons includes the huge amounts of foreign investment into Malaysia and its unique position in capturing supply chains in South-East Asia.

“Malaysia is a structural success story, the domestic drag may last for a few months but looking at the national vaccination rollout programme, the country is indeed ahead of its peers. We expect herd immunity to be achieved by early 2022,” he said.

Neumann added another bright spot is its resilient manufacturing sector, which should result in robust export growth, even after factoring in a deceleration in June and July 2021.

“Malaysia is one of the world’s largest exporters of finished automotive chips and benefits from the current supply shortage. It’s biomedical (surgical gloves) and commodity sectors (palm oil and liquified natural gas) should see sustained volume growth this year,” he said.

HSBC’s FX Research Global Head Paul Mackel said the ringgit is a commodity oriented currency which is trading relatively cheap.

“It is one of the most undervalued currencies in Asia and if we can get past the immediate concerns of the pandemic, it will sow seeds to a gradual recovery,” Mackel said.

However, EM Rates Research Global Head Andre de Silva views the future of the Malaysian market with a more cautious outlook.

“We need to monitor what the extended lockdowns could mean for fiscal and bond issuance, and if there might be a risk for future fiscal slippage. Headline inflation will remain elevated over the short-term, due to unfavourable base effects and higher oil prices, but subdued demand is likely to keep core inflation low.

Still, the negative real policy rate is likely to prompt Bank Negara Malaysia to keep monetary policy on hold despite the realisation of sharp downside risks to its growth forecast. I do think the supply pressure is greater compared to Thailand or Korea,” he noted.

Malaysian short-term risks are foreseen to be more political in nature, as the ongoing emergency has resulted in the suspension of Parliament until August 2021.

“The political uncertainty calls into question the government’s medium-term fiscal consolidation plans, which are essential for rebuilding fiscal health. The additional fiscal stimulus also risks debt breaching the 60% debt ceiling,” he said.

Meanwhile, the HSBC outlook report noted while China has been in the lead for a while now, its growing restrictions on the real estate sector may weigh on the construction industry and could take the edge off commodity prices.

Taiwan, however, is barrelling ahead, riding the wave of global semiconductor demand with an expected growth of 6% this year.

Singapore has weathered the latest Covid-19 outbreak well, boosted by a strong manufacturing sector while the Philippines has been slow to recover alongside Indonesia, with its daily infections running at record pace, raising risks of near-term growth.

Source: The Malaysian Reserve