OFTEN enough, research houses are less optimistic on economic growth figures compared to official statistical agencies, including central banks.
Bucking such trend is RHB Research’s latest outlook on the Malaysian economy whereby the research house maintained its 2021 gross domestic product (GDP) growth forecast at 5.4% year-on-year (yoy) versus the Bloomberg consensus estimate of 5% and the revised bank Negara Malaysia (BNM) estimate of 3-4% (previous forecast was 6-7.5%).
“Our 2022 GDP growth forecast of 5.5% is maintained as well,” opined its group chief economist & head of market research Dr Sailesh K. Jha in the research house’s latest market update. “In our view, the economy could have bottomed out in July and early signs of recovery are evident as of the first week of August in the industrial and consumer sectors.’
Interestingly, RHB Research based its optimism which supersedes that of BNM to the utilisation of machine learning techniques to transform satellite images of the Malaysian economy – sector by sector – to numerical data point to then forecast headline and the sub-components of GDP.
Whether artificial intelligence (AI) can outsmart their human counterparts is left to be seen but RHB Research listed the below as the main catalysts for its relatively optimistic view on Malaysia’s 2021 GDP growth:
- We combine science with the art of forecasting whereby we use close to real time data (around seven days lagged) to monitor the Malaysian economy.We find limited evidence that the Malaysian economy will contract in 3Q 2021 and 4Q 2021 which is what BNM is suggesting for a 2H 2021 GDP growth estimate of around -0.8% yoy (based on the mid-point of their annual GDP growth forecast of 3-4%).
- We maintain our view that private consumption GDP will recover in 2H 2021 with our 2021 forecast of 7% yoy (vs 2020’s -4.3%) remaining unchanged. This is despite the fact that 2Q 2021 private consumption GDP printed 11.6% yoy vs our econometric model estimates of around 15% coming into this week.
- We expect the unemployment rate to drop to around 4% in 2H 2021 vs 4.7% in 1H 2021 on the back of robust export growth and large parts of the economy re-opening sooner rather than later.
- We maintain our view that the public infrastructure spending programme will surprise on the downside in 2021. Our construction sector indicator suggests continued weakness in early August.
- Empirical evidence from a cross section of countries suggests that as COVID-19 vaccination rates rise, the number of new daily cases rises but this hasn’t meant that the mortality rate rises significantly on average. In the context of Malaysia, this empirical observation is applicable till date.
- Hence, the next step is that the Government will move Selangor and Kuala Lumpur to Phase 2 from Phase 1 of the National Recovery Plan (NRP) by mid-September at the latest if not earlier.
The main metrics to be utilised in making this decision will be the two-dose vaccination rate being 40-50% of the population, ICU (intensive care unit) beds as percentage of the population in these two geographies rises significantly, and number of new cases which are serious in nature decline. – Aug 15, 2021
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