THE ongoing implementation of conditional movement control order (CMCO 2.0) since Oct 14 is likely to keep Malaysia’s economy in contraction mode for 4Q CY2020.
On this note, CGS-CIMB Research has reiterated its full-year gross domestic product (GDP) projection of -5% in 2020 while Bank Negara Malaysia (BNM) has moved its point forecast guidance for 2020 to the weaker end of its -5.5% to -3.5% forecast range.
“Looking ahead, we are in agreement with BNM that economic growth is likely to recover strongly in 2021,” wrote economists Michelle Chia and Lim Yee Ping in an economic update.
This is given the central bank has revised its GDP forecast to between +6.5% and +7.5% from +5.5% to +8% (CGS-CIMB Research: +7.5%) on the back of fiscal and monetary stimulus tailwinds.
“While the economy will likely trail its pre-COVID-19 trend until 2021, we think the recent BNM policy statement indicates that current monetary settings are adequately supportive,” opined Chia and Lim.
On this note, CGS-CIMB Research reiterated its end-2021 overnight policy rate forecast of 1.75% which implies an extended hold in the benchmark interest rate.
The contraction in Malaysia’s GDP moderated significantly to -2.7% year-on-year (yoy) in 3Q CY2020 (-17.1% yoy in 2Q CY2020) as economic activity rebounded strongly on a sequential basis following the transition into the recovery movement control order in June.
“The GDP outturn in 3Q CY2020 exceeded our forecast of -3.5% yoy mainly due to an outperformance in public consumption and inventory changes on an expenditure basis, as well as government services and import duties on a sector basis,” added the research house.
On a positive note, Malaysia’s current account surplus widened sharply to RM26.1 bil or 7.1% of GDP in 3Q CY2020 (2Q CY2020: +RM7.6 bil or 2.5% of GDP) on higher goods exports and a net secondary income surplus of RM7.1 bil – the first since the time series began in 1999 – due to the 1Malaysia Development Bhd settlement received from Goldman Sachs. – Nov 13, 2020
