UOB Malaysia forecasts Malaysia’s economy to contract by 5.5 this year, before rebounding by 6% next year.
UOB Malaysia Senior Economist Julia Goh explained that their forecast was lower compared to the -4.5% official forecast for this year and 6.5% to 7.5% for 2021 because they are taking a cautious stance on the vaccines’ efficacy as we as the government’s execution of the mega projects, reported The Edge.
“We expect a recovery in 2021, but we are cautious given the lingering uncertainties surrounding the pandemic and the effectiveness of the vaccine. We think the recovery will continue into 2021, but we think the growth will be uneven,” she said as quoted by The Edge.
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Goh said the recent Conditional Movement Control Order’s (CMCO) economic costs is half of that seen during the March to April lockdown, given that the restrictions under the CMCO are less stringent with more economic sectors allowed to operate.
“The economic cost of the CMCO this time is about RM17 billion to RM22 billion, compared to RM30 billion to RM45 billion during the enhanced movement control order (EMCO) in March to April,” she revealed.
However, the CMCO’s spillover effect is that consumers have become more cautious with their spending.
Nonetheless, she pointed to the projected recovery in external demand as the silver lining for the economy, along with the positive sentiment on the vaccines’ rollout and the fiscal stimulus support measures.
The key risk to watch out for 2021 is how global recovery will pan out. Specific factors for Malaysia is the next FTSE World Government Bond Index review in March, domestic political events and the international raging agencies’ upcoming sovereign review.
“While the approval of the budget at policy stage is affirmative for investor confidence, lingering political uncertainty may [cause] some investors to stay on the side lines,” said Goh.
The signing of the Regional Comprehensive Economic Partnership (RCEP), however, is positive for foreign direct investment.
“I think this will facilitate more trades and investments coming into the region, including Malaysia, for the future,” she added.
And since she is forecasting a recovery for 2021, Goh expects the overnight policy rate to remain unchanged at 1.75% throughout next year.
She also expects the ringgit to strengthen further to around 4.00 versus the US dollar by end-2021.
“I think the outlook for the ringgit is on the back of broad dollar weaknesses, also the Asia recovery story, particularly in China, which will lead Asian currencies including ringgit to strengthen further,” she said.
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