2 weeks ago
2 
PETALING JAYA: Malaysia’s growth for 2021 has revised downwards to 6.3% from a previous projection of 7%, according to RHB’s group chief economist and head of market research Dr Sailesh Kumar Jha.
Despite the downward revision, he views the projected growth as still fairly robust.
“We believe that consumer sentiment is slowing and likely to slow moving into the first half of next year. It is an improvement and not on a big deceleration path,” Sailesh told the media at RHB’s “Path Finder – Separate the Noise from Reality” report launch.
Another factor that would affect Malaysia’s growth for the coming year is its position as a small open economy, where exports matter to a significant extent.
To date, the pace of export growth has been fairly robust on the global level as evident in South Korea, Taiwan, China, Singapore and many other markets.
“A lot of it has to do with electronics and pharmaceutical sectors but as those tailwinds from global demands start decelerating, our exports projection will be lower than what the consensus is estimating, “ said the chief economist.
“We do think that the consumer sentiment will slow, as we just started opening up in terms of movement control order (MCO) measures, so there will be a lag effect on how much economic activity picks up that feedback into labour market conditions.”
Sailesh said the high unemployment rate will create some negative sentiment on consumer spending. In 2020, Malaysia’s unemployment rate hit a high of 5.3% and fell to 4.6% in the subsequent months.
On the global front, Sailesh highlighted that the financial market is in a euphoric state, as it anticipates a V-shaped pickup in asset price to continue in the foreseeable future and that the rebound in global growth and economic activity in Asia seen since the summer of this year will continue into the next.
With that, RHB takes a contrarian view based on economic policy and financial market data.
“Our key message is that market expectations will be disappointed as we head in 2021, as there will be a downside surprise in growth globally in most countries.”
In addition, the head of market research has pencilled in a further loosening of monetary policy.
Domestically, he believes Malaysia’s key interest rate would be held steady at 1.75%, but with a risk tilted towards a cut by Bank Negara Malaysia as early as middle of next year, should his global, macro and markets assumptions prove to be accurate.
Effectively, this would emphasise Malaysia’s feature as a safe-haven market.
Thus far, Sailesh pointed out, MSCI China has gone up by over 30% and US high yield bond is up by approximately 15%. However, the Malaysian equity market is only up by 0.9% and the ringgit has hardly moved against the US dollar, while the renminbi has appreciated by 6% this year.
He reasoned that Malaysia has yet to realise this euphoric state of the global financial markets and should this euphoria subside as anticipated in first-half 2021, there would not be much correction seen domestically.
“By tautology, we’re not going to feel that turnaround in sentiment. Simply because, we really have not benefited from it in 2020 and hence this leads to our investment idea that Malaysia’s capital market will be perceived as a safe haven destination in Asia.”
With regard to Fitch Rating’s downgrade on the country’s rating to BBB+ from A-, the chief economist disagrees with some of the firm’s assessments, including on the country’s external liquidity conditions, as Malaysia has a large foreign investor component in the domestic bond market.
“We believe domestic and external liquidity conditions in the Malaysian capital market are fairly resilient, and that the government will come to the table in terms of fiscal consolidation once these headaches behind Covid-19 die down within the next year or so,“ Sailesh said.
He believed that the other rating agencies, S&P and Moody’s are not likely to follow suit.
A factor that will affect Malaysia’s growth for the coming year is its position as a small open economy, where exports matter to a significant extent. – AFPPIX
English (United States)