Malaysia: GDP forecast to contract 5.5% in 2020 – UOB

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting reviewed the latest GDP figures in the Malaysian economy.

Key Quotes

“Real GDP contraction narrowed to a low single digit of -2.7% y/y in 3Q20 (from -17.1% y/y in 2Q20). It came in line with our estimate (-2.6%) but well above Bloomberg consensus (- 4.0%). On a seasonally adjusted quarterly basis, real GDP gained to the strongest level on record of +18.2% q/q after falling for two quarters (2Q20: -16.5% q/q and 1Q20: -2.0% q/q). This confirms that Malaysia’s economy is on the road to recovery thanks to the easing of COVID-19 containment measures and improved external demand conditions.”

“Despite the substantial economic recovery in 3Q20, the path forward is likely to be uneven and weighed down by the resurgence of infections and tightened restrictions under the Conditional Movement Control Order (CMCO) across wider parts of the country. Business and consumer sentiment has turned more cautious despite the containment measures being less stringent and economic activity allowed to continue. We revise down our 2020 GDP estimate to -5.5% (from -3.5% previously; MOF forecast: -4.5%) but revising up our 2021 forecast to +6.0% (from +5.5%; MOF: 6.5%-7.5%) on account of low base effects and potentially better export-led growth.”

“Given that Bank Negara Malaysia (BNM) has factored in the impact of third wave of pandemic in its 2020 GDP estimate and projected the economy to recover in 2021, we believe BNM will keep its hand on the rate pause button through 2021. Our view is also supported by more neutral monetary policy statements in Sep and Nov, and an expansionary budget for 2021 to revitalize the economy. Following today’s release, BNM Governor Nor Shamsiah commented there was no need for unconventional monetary policy and large-scale asset purchases.”