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PETALING JAYA: Should Covid-19 infections in Malaysia increase to a level that hampers economic recovery, the government will give priority to fiscal measures and stimulus to support the economy, although there is still room for Bank Negara Malaysia (BNM) to cut the Overnight Policy Rate (OPR) by at least 25 basis points, reckons Kenanga Research.
It said that BNM, similar to the US Federal Reserve, has acknowledged that an accommodative monetary policy stance will be needed through 2021 given the uneven pace of recovery and the downside risks to economic outlook.
“This is in line with our house view that BNM will keep the OPR unchanged at 1.75% for the rest of the year, particularly given the recent relaxation of Covid-19 restrictions, Malaysia’s continuing vaccination drive and the additional RM20.0 billion Pemerkasa stimulus package,” Kenanga Research said in a report.
Despite indications of recovering economic activities, MIDF Research remains cautious that the ongoing Covid-19 pandemic will pose downside risks to Malaysia’s growth outlook.
“There is an indication that Malaysia is experiencing another new wave of Covid-19 infections as new cases have been trending upwards in recent weeks. In addition, the macroeconomic outlook can also be adversely impacted by the potentially slow progress in vaccine administration locally and abroad.”
MIDF Research projected a gross domestic product (GDP) growth of 5.4% in 2021 for Malaysia despite weakness in the early part of the year due to the movement control order 2.0 (MCO 2.0).
“We expect the enforcement of MCO 2.0 to mainly affect domestic consumption spending while businesses were mostly allowed to continue operation,” it said.
On the back of easing restrictions and the end of MCO 2.0, the research house anticipated an improvement in economic activity in second-quarter 2021 (Q2’21) onwards, supported by fiscal stimulus from the government, accommodative monetary policy, and improved sentiment following the ongoing vaccination programme.
For Q2’21, it projected rather strong growth, due mainly to the low base effect as Malaysia’s economic growth in the same quarter of the previous year plunged when the MCO was first introduced.
MIDF Research pointed out that this could prove to be an upside risk as the actual numbers can be stronger than anticipated, as shown by the recent data releases for March 2021, as exports will continue to be supported by growing external demand from major trading partners.
Fitch Solutions, however, has revised its projection for Malaysia’s 2021 GDP growth to 4.9% from 10.0% previously, due to the country’s continued restrictions placed on non-essential retail, movement curbs and limited fiscal space to offer renewed support.
It said the recent lockdown will result in a resurgence in unemployment, which would significantly dim the prospects for a recovery in domestic demand. The rating agency’s research unit added that government consumption is not likely to provide meaningful support.
Fitch Solutions expects the unemployment rate in 2021 to remain elevated, as businesses slowly recover and increase employment.
“As such, we project that unemployment will only begin falling from H2’21 onwards. Additionally, we see inflation picking up slightly over 2021, as increasing demand from H2’21 puts upward pressure on prices,” it said.
However, it does not expect this level of inflationary pressure to have a significant impact on its outlook for Malaysia.
Source: https://www.thesundaily.my/business/government-seen-giving-priority-to-fiscal-measures-and-stimulus-to-support-malaysian-economy-XJ7812716