Malaysia likely to post a very subdued 1Q 2021 economic growth

HONG Leong Investment Bank (HLIB) Research expects Malaysia to post a 0% 1Q 2021 gross domestic product (GDP) growth which is still better than a -0.2% year-on-year (yoy) contraction when the outcome is made known tomorrow (May 11).

Despite that economic activity started the year on a weak note following the re-imposition of movement control order (MCO 2.0), the research house contended that manufacturing remained a bright spark given the industrial production index (IPI) has strengthened by +6.8% yoy (4Q 2020: +2.8% yoy).

Both export-oriented (+9.1% yoy; 4Q 2020: +5.2% yoy) and domestic-oriented sectors (+2.6% yoy; 4Q 2020: -1.8% yoy) recorded improved performance in 1Q 2021.

“During the start of the year, the services sector was impacted by MCO 2.0 when interstate travel ban was reinstated and business operating hours were shortened albeit by a smaller magnitude,” observed economists Felicia Ling and Goh Khing-Mae in an economic outlook.

“Towards the end of the quarter however, states reverted back to conditional MCO (CMCO)/recovery MCO (RMCO) which boosted economic performance.”

While the current two-week imposition of MCO 3.0 (in Klang Valley) could pose some downside risk to growth in 2Q 2021, HLIB Research expects this to be mitigated by low base effect from weak GDP that began in mid-March 2020 which is expected to lift GDP growth in 2Q 2021 onwards.

“On the upside, faster growth could be expected in the subsequent quarters if global growth picks up further and vaccine roll-out progresses faster than expected,” projected the research house.

“Pending release of the actual 1Q 2021 GDP print, we keep our 2021 forecast unchanged at 5%.”

Meanwhile, CGS-CIMB Research maintained its view that MCO 3.0 is likely to be less painful than past iterations.

However, the research house is concerned that corporate earnings risks could rise if current measures put in place to curb the spread fail to flatten the COVID-19 infection curve within the next month as the pace of the national immunisation programme for COVID-19 is likely to only pick up in June when more vaccines arrive for Phase 3.

“Concerns over increasing COVID-19 cases could dampen near-term sentiment and prompt investors to profit-take on recovery play stocks (banks, auto, REIT, property, construction and tourism-related names) as well as names that have done well,” suggested head of research Ivy Ng Lee Fang in a strategic note.

“Some investors could switch to defensive plays (utilities, telco and glove makers). We keep our FBC KLCI target of 1,699 points.” – May 10, 2021

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