WHILE the economic impact from the nationwide re-imposition of movement control order (MCO 3.0) from May 12 to June 7 is expected to be minimal due to a less stringent containment measures, economists remain cautious that the alarming spike in local COVID-19 infection rate could continue to pose significant risks to Malaysia’s economic recovery.
Malaysia’s 1Q 2021 GDP which declined by a mild 0.5% year-on-year (yoy) marks a rebound against 4Q 2020’s -3.4% though trailing 1Q 2020’s +0.7%.
In Kenanga Research’s view, the country’s COVID-19 inoculation drive and a continued targeted policy support from the Government is seen to boost consumer sentiment by providing support to domestic demand in the 2H 2021.
Hence, our stronger growth expectation in the 2H 2021 at 6.4% versus a projected 6.2% in the 1H 2021.
“In addition, public investment is projected to continue to improve on the continuation of large infrastructure projects such as East Coast Rail Link (ECRL), Light Rail Transit Line 3 (LRT3), Pan-Borneo Highway and Jalinan Digital Negara (JENDELA),” commented the research house in an economic update.
“On the external front, strong demand for COVID-19-related items and semiconductors, coupled with stable global crude oil price are expected to provide an additional boost to exports growth.”
As a whole, Kenanga Research maintained its 2021 GDP forecast at 6.5% but revised downward its 2Q 2021 forecast to 14.1% from 14.3% previously.
Nevertheless, the research house stressed that its outlook is contingent on multiple external and domestic risk factors, including the fierce new wave of COVID-19 pandemic both locally and abroad, slow progress of the national COVID-19 immunisation programme, the effectiveness of vaccines against the COVID-19 variants, potential domestic political tussle and rising geopolitical uncertainty (eg US-China and Australia-China).
On the monetary front, Kenanga Research expects Bank Negara Malaysia to keep the overnight policy rate (OPR) unchanged at 1.75% amid an uneven domestic economic recovery due to a resurgence in local COVID-19 cases and Malaysia’s relatively slow vaccination rate.
“On the downside, if the current nationwide MCO 3.0 fails to curb the rise in local COVID-19 cases, Malaysia might once again be placed under the draconian MCO 1.0,” projected the research house.
“Should this happen, we believe that BNM could adjust the overnight policy rate (OPR) lower by at least 25 basis points as the central bank still has ample room to manoeuvre in the 2H 2021.”
But before such monetary option is taken into consideration, Kenanga Research expects the Government to again opt for another stimulus package to support the economy. – May 12, 2021
