V-shaped economic recovery likely in 2021

Growth strategy: A research firms says the Covid-19 damages could be repaired through expenditure on infrastructure or construction.

PETALING JAYA: The government’s official guidance of a 6.5%-7.5% gross domestic product (GDP) growth in 2021 is largely in line with the forecasts of economists.

After falling into a recession in 2020, the Malaysian economy is projected to stage a “V-shaped” recovery next year.

However, economists cautioned that the pace of recovery would largely depend on how the Covid-19 pandemic plays out.

According to CGS-CIMB Research, it expects the economy to expand by 7.5% in 2021 as compared to a contraction of 4.4% this year.

The research house pointed out that the government’s growth projection of 6.5%-7.5% likely reflects a baseline scenario in which the Covid-19 pandemic gradually dissipates with low risk of strict movement control orders.

“The main drivers for a recovery next year are a rebound in private consumption, investments and net exports. All sectors are expected to record healthy expansions, with manufacturing and services leading the way.

“Within services, the government has pencilled in a sharp rebound in wholesale and retail trade, food and beverages as well as accommodation, transport and real estate.

“The resumption in key infrastructure projects will help buoy construction activity, including the Pan Borneo Highway, Gemas-Johor Bahru Double-Tracking Project, Johor Bahru-Singapore Rapid Transit System, Mass Rapid Transit Line 3 and the potential resuscitation of the High-Speed Rail, ” said CGS-CIMB Research.

Meanwhile, AmBank Research believes the economic recovery in 2021 will be supported by measures under Budget 2021, the RM305bil stimulus packages announced previously and an anticipated improvement in global trade, among others.

The low base effect, considering that the GDP will likely decline this year, would also help the economy to stage a sharp recovery.

The research house anticipates a 6.5%-7% growth next year.

“However, the success of 2021 and beyond will depend on how the pandemic virus plays out next year. Should the number of new cases remain troubling and result in more restrictive measures, it could clip some percentage points of the 2021 GDP’s growth target.

“How severe the impact should the pandemic virus continue to weigh on 2021 growth will depend on how successful the government’s reactionary policies are instituted. In times of uncertainty, there is a need to have policy certainties and strategies that can boost investor confidence as well as consumer sentiment.

“Clarity in policy certainty will be welcomed by businesses as some of them have been holding back due to uncertainties in the local and external markets. Besides, coordination is important, ” it said.

AmBank Research pointed out that the Covid-19 damages could be repaired through expenditure on infrastructure or construction.

It said construction activities offered a multiplier effect of 1.8 times to the gross output of other industries or the overall economy for every RM1 spent.

The immediate spillover will be on townships located along the development pathway.

“Opportunities for the opening up of new industrial and commercial sectors along the corridor can be envisaged. This will lift consumer and business sentiments.

“In the long term, this segment of the economy will spur new economic activities along the development areas. With more infrastructure projects, the localised impact will be stronger in terms of job creation, business opportunities and injection of income into the local economy, ” stated AmBank Research.

In a separate note, PublicInvest Research expects a sharp V-shaped recovery in 2021, although the pace of growth is slightly slower at 6.2% compared to the government’s forecast.

It remains cautious on the growth prospects as the balance of risks are skewed to the downside due to the uncertainty caused by the Covid-19 pandemic.

“This will be weighed by uncertain external conditions and a prospect of weak oil prices despite massive interventions to support prices by a cartel of producers (Opec+).

“A prolonged expansionary monetary policy in advanced economies is also a source of risk that could trigger capital mobility and volatility with a bias towards safe haven assets namely debt instruments, ” it said.

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