Maybank Kim Eng expects the Malaysian economy to grow by 5.1% in 2021 after a contraction of 5.4% in 2020, but warned that political uncertainty is a key risk for economic recovery.
The research house said in a report today that domestic politics remained a major overhang, hence a downside risk in terms of political uncertainty and instability.
According to Maybank Kim Eng, the Perikatan Nasional (PN) government’s very low single-digit majority in the Parliament remains an issue amid the cloud of no-confidence motions on the Prime Minister (PM) as well as the tension among PN coalition partners, especially between PM’s party Bersatu and Umno, which led the former Barisan Nasional government.
Reflecting the political instability, on Dec 4, the Perak Menteri Besar from Bersatu lost the confidence vote in the state assembly. The motion was tabled by an Umno assemblyman who was backed by opposition parties DAP, PKR and Amanah, said Maybank Kim Eng.
“A snap general election (GE) in 2021 is a distinct possibility — well ahead of mid-2023 under the full five-year GE cycle — especially if the current third wave of Covid-19 is brought under control following the availability of Covid-19 vaccine,” it added.
Maybank Kim Eng also noted that there are speed bumps on the road to recovery as Malaysia is going through its third wave of Covid-19 infections, which is much more severe than the previous two waves.
It said the more recent Covid-19 cases involving foreign workers, especially in the manufacturing and construction sectors, have forced the re-implementation of Conditional Control Movement Order (CMCO) and compulsory Covid-19 testing of foreign workers to curb Covid-19 transmission.
“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,” it said.
Given the prevailing “2020 recession, 2021 recovery” narrative, Maybank Kim Eng expects Bank Negara Malaysia (BNM) to maintain the record-low overnight policy rate (OPR) of 1.75% until end-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),” it said.
Source: The Edge Markets
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