RHB Investment Expects Malaysia's GDP Growth to Rebound in Q2

KUALA LUMPUR, March 5 (Bernama) -- RHB Investment Bank Bhd expects Malaysia’s gross domestic product (GDP) growth to contract by 2.6 per cent year-on-year (y-o-y) in the first quarter of 2021 (Q1 2021), before rebounding strongly by 16.4 per cent in Q2 2021. It said the economy is likely to weaken in Q1 2021 as the stricter Movement Control Order (MCO) 2.0 beginning mid-January put a brake on consumer, manufacturing and services sectors activities. However, the GDP is expected to rebound in the next quarter following the recovery in a number of sectors with the easing of the MCO restrictions since March. Overall, it expected the GDP to grow 5.4 per cent this year; forecasting the growth to be at 4.2 per cent in Q3 2021 and 3.8 per cent in Q4 2021. "We also raise our 2022 GDP growth forecast to 5.5 per cent from 5.0 per cent as we expect global trade to show further signs of improvement following a robust recovery in the United States (US) and China," it said in a note Monday. From the demand side, RHB Investment expects private consumption GDP to rebound in Q2 2021 amidst the continued easing of restrictive COVID-19-related measures. Additionally, the recent high-frequency data and anecdotal evidence suggest that the manufacturing sector may have rebounded in March, suggesting early signs of recovery in broad economic activity. RHB Investment also expects the unemployment rate to drop sooner rather than later, while the recently announced PEMERKASA package (stimulus package) and the i-Sinar programme (under the Employees Provident Fund) are expected to provide support to consumer spending. Meanwhile, it has also revised its 2021 fiscal deficit forecast to six per cent of the GDP from 5.5 per cent previously. "We factored in the additional RM11 billion (US$2.66 billion) direct fiscal injection on the back of the PEMERKASA stimulus package. "Our current revenue forecast is unchanged, but we added the expenditure for fuel subsidy spending, the grants for small and medium enterprises and cash transfers, and higher development expenditures for small scale projects," it said. RHB Investment also estimated a fiscal deficit of RM91.8 billion (US$22.16 billion) this year in level terms compared to the Finance Ministry’s forecast of RM84.8 billion (US$20.38 billion) in 2021 Budget outlook. “On the ringgit, we believe Malaysia being retained in the FTSE Russell World Government Bond Index is a positive factor. “However, the balance of risk indicates that rising US Treasury 10-year bond yields will exert influence in the local debt market, which could induce outflow of funds in both the bond and equity markets. If that does play out, the ringgit faces headwinds from capital flight," it added. It also views the further liberalisation of foreign exchange policy as positive for the development of the local foreign exchange market, providing flexibility for market participants to manage foreign exchange risks as well as the ability to hedge commodity positions with better pricing. As for the global market, RHB Investment said the outlook is improving with COVID-19 daily new cases dissipating and economies slowly opening up in terms of the number of operating sectors. "The fiscal and monetary policy in the US and most parts of the world remain accommodative and will be an important support for global growth in Q2 2021 and in the second half of the year. "We expect global industrial production to accelerate to an average of 10 per cent y-o-y for the remainder of 2021 versus the January print of 7.4 y-o-y. "The US consumer and robust export-oriented sectors in Asia (excluding Japan) will be the main drivers of global industrial production growth for much of 2021," it noted. -- BERNAMA