PETALING JAYA: After a number of revisions to Malaysia’s growth forecasts, Kenanga Investment Bank has settled on a 5-6% gross domestic product (GDP) expansion projection for 2021, taking into account the economy’s recent performance and the Covid-19 situation.
According to its head of economic research, Wan Suhaimie Wan Mohd Saidie, the forecast is predicated on an improvement in private consumption from second-half 2021 (H2’21) onwards.
He said the bank anticipated private consumption to grow by 6.7% year-on-year (y-o-y) in the second half compared with 5% y-o-y in the first half of the year.
“So it is a story of two halves, here. Initially, we were looking at a higher first half but now we are looking at a higher second half because of the recovery and the intensity of Covid-19’s rise,” Suhaimie told the media during Kenanga’s Q3 2021 Market Outlook virtual briefing today.
Previously, the bank projected 3.9% growth for 2021 then revised the forecast up to 6.5% before bringing it down to the current 5-6%. The forecast of 5-6% growth is still below the government’s unrevised expectation of 6-7.5%.
“Should the country reach phase two of the recovery, between August and September, hopefully this will reduce the number of cases and the government will gradually reopen the economy. For now it is still 50-50, we are still giving credit to the government but there is a possibility that we might revise that 5-6% growth,” Suhamie said.
With regard to services, Suhaimie believes the sector is still underperforming with an anticipated growth of 5% equivalent to a 2.9% contribution to GDP growth of 5-6%, although it will be far higher than the 5.5% decline registered in the previous year.
“However, this is still below the three-year average of more than 6% experienced pre-Covid. We still underperform but hopefully this will gradually change once the economy reopens with the restart of travel and tourism, which will take another six to 12 months,” he said.
Meanwhile, Suhaimie pointed out that the manufacturing sector has been a saviour of the Malaysian economy and it is projected to grow by almost 8% this year, contributing 1.8% to GDP growth, primarily due to the high export demand for electric & electronics goods, commodities and rubber products, particularly gloves.
As for second quarter GDP, he projected a growth figure of about 11% or in the lower teens. “However, this will translate into negative quarter-on-quarter growth, signifying a technical recession.”
Suhamie said the growth projection of 5-6% translates into a W-shaped recovery, underpinned by broad-based improvements across components and sectors, lifted by various policy measures, stronger external demand and wider vaccine rollout.
“However, we might need to revise downwards, should the government extend the MCO after July 16.”
On the key interest rate, Suhamie expects the central bank to keep it at 1.75%. However, he noted that the possibility of a rate cut has increased slightly but believes Bank Negara Malaysia will refrain from doing so unless things get really bad.
“I don’t think a rate cut will happen but there is room to cut.”
Source: The Sun Daily
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