Economic recovery to hit speed bump with MCO 3.0-induced uncertainties

GRAPPLING with the third wave of COVID-19 infection and the re-imposition of movement control order (MCO 3.0) as the national health system is nearing its breaking point, it will be self-denial to think that the Malaysian economy will walk away unscathed.

Given the similarities between MCO 3.0 and MCO 2.0, PublicInvest Research expects the latest lockdown which will be enforced from May 12 to June 7 to cost the Malaysian economy -RM300 mil daily, particularly from restrictions on contact-sensitive businesses which will be a drag on the services sector (MCO 1.0: RM2 bil/day).

“While vaccinations are expected to gather pace in the coming months, the discouragingly low levels of registrations are a cause for concern and may be a dampener towards the Government’s aim to achieve herd immunity by end-2021/early-2022,” opined the research house in a market strategy note.

“It is imperative that this programme be sped up if the country’s economic recovery is to have a fighting chance of hitting the upper band of consensus expectations (2021 GDP growth: >6.5%).”

PublicInvest Research is concerned that the improvement in labour market conditions may be delayed by the constant MCOs and resultant strains on businesses while the Government may find it hard-pressed to continue supporting households and businesses without putting further strains on its coffers should these conditions persist.

“The obvious sectors to be hit will again be the tourism-related ones (hotels and airlines) given the prohibition of cross-border travel,” noted the research house.

“Gaming (casino) may be deemed non-essential and a potential hotspot, and may be shuttered once again though the impact to earnings is not likely to be significant as cross-border and international travel have not been allowed or some time in any case.”

Although the consumer sector may not be as badly affected given most sub-segments are open, there is bound to be notable drop in expected mall footfall that could crimp sales, according to PublicInvest Research.

“While the market remains a trading-oriented one with volatile swings to be expected, our 2021 year-end FBM KLCI closing is lowered to 1,690 points @ 16 times multiple to one-year forward earnings (1,750 previously @ 16.5 times to one-year forward earnings) on rising risk premiums,” added the research house.

Meanwhile, Ambank Research expects the domestic economy to continue recovering but the pace of recovery will depend on the vaccination roll-out and management of COVID-19 cases, both domestically and abroad.

“Our base case suggests the domestic economy could expand around 6.0% in 2021,” projected its chief economist and head of research Dr Anthony Dass in an economic update.

The research house expects growth to be supported by stronger global growth and trade, an up cycle of global semiconductors, stronger demand for manufactured goods, firm commodity prices, a pick-up in investments, capital expansion, the roll-out of vaccination, benefits from the stimulus measures and a low base.

“Nevertheless, the downside to our projection (primarily taking into account of COVID-19 cases and the vaccination roll-out) is at the 5.0% level while the best case is at 7.0%,” projected AmBank Research. – May 11, 2021

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