The Malaysian economy is expected to record a 5.1% growth in 2021, following a 5.4% contraction this year, Maybank Kim Eng said in a report.
However, it warns that political uncertainty poses a key risk for economic recovery. The research house noted that domestic politics, which continued to be a major overhang, is a downside risk in terms of political uncertainty, reported The Edge.
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The very low single-digit majority of the Perikatan Nasional (PN) government in the Parliament remains an issue amidst the tension among PN coalition partners and the cloud of no-confidence motions on the Prime Minister, it said.
The Perak Menteri Besar from the Prime Minister’s party Bersatu lost the confidence vote on 4 December in the state assembly – mirroring the political instability in the country.
Maybank Kim Eng revealed that an assemblyman from Umno party, which is a partner of the PN coalition, had tabled the motion that was backed by opposition parties PKR, Amanah and DAP.
With this, it believes that a snap general election (GE) is “a distinct possibility” next year, “especially if the current third wave of COVID-19 is brought under control following the availability of COVID-19 vaccine”.
The research house also sees speed bumps on Malaysia’s road to recovery given that it is on its third wave of COVID-19 infections.
Malaysia was forced to re-implement the Conditional Control Movement Order (CMCO) since the third wave of infections is much more severe than the previous waves.
Foreign workers were also subjected to compulsory COVID-testing since most of the recent cases involved foreign workers, particularly those from the construction and manufacturing sectors.
“Consequently, the economic recovery process is facing ‘speed bumps’ given the sensitivity of real gross domestic product (GDP) to the restrictions and containment measures and the impact of these measures on mobility,” said Maybank Kim Eng.
With the prevailing narrative of a “2020 recession, 2021 recovery”, the research house expects Bank Negara Malaysia (BNM) to keep the overnight policy rate (OPR) at 1.75% until the end of 2021.
“We see this as a ‘dovish pause’ as BNM’s Monetary Policy Statement released after the Monetary Policy Committee meeting on Nov 2 to 3, 2020 indicated that on balance, the risk to economic outlook remains tilted to the downside, implying the bias for any change in OPR over the next 12 months is cut(s) rather than hike(s),” said Maybank Kim Eng.
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