KUALA LUMPUR, Malaysia (July 5): Due to the Covid-19 pandemic-induced lockdown, Maybank Investment Bank Bhd (Maybank IB) lowered its growth prediction for Malaysia to 4.2 percent in 2021 from 5.1 percent earlier. Bank Negara Malaysia (BNM) is expected to retain the overnight policy rate (OPR) at 1.75 percent for the rest of the year, according to the report. “In terms of the GDP forecast, we have basically trimmed this year’s forecast from the previous 5.1 percent to 4.2 percent, taking into account the impact from this, the ins and outs of tighter restrictions and lockdowns,” Maybank IB chief economist Suhaimi Ilias said today during a virtual briefing on “Maybank IB’s Malaysia 2H 2021 Outlook.”
The reduced GDP growth prediction, according to Suhami, is mostly due to a lower growth forecast for non-manufacturing sectors on the supply side of the economy, as well as a downgrade for the private expenditure component of aggregate demand.
Except for the manufacturing sector, all growth predictions were lowered lower in the most recent forecast. The services sector’s growth forecast was dropped to 4.2 percent (from 5.1 percent), while the mining and agriculture sectors’ forecasts were lowered to 1.3 percent and 0.5 percent, respectively, from prior predictions of 3.2 percent and 1.8 percent.
Meanwhile, after accounting for reduced growth predictions for private consumption and private investment at 3.9 percent (from 5.9 percent) and 4.1 percent, respectively, domestic demand is expected to drop further to 4.7 percent from the earlier estimate of 6 percent (from 6.3 percent ).
Nonetheless, Suhaimi stated that the research firm raised its forecasts for the industrial sector and foreign trade to reflect the global economic recovery.
“In light of the extra economic stimulus package and increased direct fiscal injection, we have upped our prediction for public consumption while keeping the outlook for a double-digit comeback in public investment,” he added.
In 2021, the OPR will remain at 1.75 percent.
Despite the risk of growth slowing this year, Maybank IB forecasts the OPR to remain at 1.75 percent this year before rising 25 basis points to 2% in 2022.
Suhami did warn, though, that the uncertainty surrounding the Covid-19 epidemic could drive the central bank to decrease rates in September.
“One factor that could force BNM to consider cutting interest rates is that the current lockdown will last longer than expected, given that we should be out of Phase 1 of the National Recovery Plan (NRP) by this month, given that the rate of fully vaccinated people is rapidly approaching the 10% threshold.
“However, if that does not happen, I believe that will be a potential trigger for BNM to consider decreasing rates at the next meeting, particularly in September, unless BNM has a very clear view that we will not be out of this MCO or Phase 1 of the NRP this month,” Suhaimi explained.
Malaysia is at risk of losing its credit rating.
Suhami believes that the risk of a downgrade to Malaysia’s sovereign ratings persists, notably from Standard and Poor’s (S&P).
“Despite the fact that they confirmed our present rating, they also kept the negative outlook. But what has transpired thus far is consistent with our fixed income analysis, which predicts that we would receive mixed ratings from the three major rating agencies.” Fitch had already cut us by one notch, but had changed the rating outlook from negative to stable. Moody’s has kept its rating and given it a stable outlook, while S&P has kept its rating but given it a negative outlook “He made a point.
Suhaimi also mentioned some crucial metrics that may have an impact on the ratings. “The first is the increase in net government debt, which has risen by more than 4% as a result of the stimulus package. Another point to consider is that debt servicing costs as a proportion of sales have already surpassed 15%. As a result of the rising debt, I believe it’s closer to 17 percent right now “”I’m eiling,” he explained./n
