SUMMARY

● 2021 marks a pivotal point in the global economy, contingent upon a wider rollout of COVID-19 vaccine, possibility of gradual reopening of international borders, the restoration of global supply chain and further acceleration in demand for advanced technology.

● Key points to watch would be a steady rate of recovery in global trade and an almost broad conviction by central banks to keep rates low and the liquidity spigots to remain open for an extended time frame.

● GDP growth is projected to chart a positive turnaround in 2021 (6.1%; 2020F: -5.1%) on a broad-based improvement across demand components and sectors, and partly due to a low base effect.

● Fiscal deficit is expected to narrow to 5.6% (2020F: 6.3%) on higher oil price (USD50/bbl; 2020: USD43), with government debt to GDP ratio estimated to taper to a range of 57.0% - 59.0% (2020F: 62.2%).

● With the strong bearish USD momentum in place, foreign funds are likely to return to the emerging market which may augur well for Malaysia’s capital market, supporting further upside to the ringgit. Hence, USDMYR is projected to settle at 3.95 at the end of 2021.

● We continue to believe that BNM has ample space to reduce the overnight policy rate but we expect it to remain unchanged at 1.75% due to the prospects of a stronger economy in 2021.

● Downside risks remain arising from the domestic political uncertainty with the possibility of a snap general election in the 1H21, potential renewal of US-CN trade tensions under the new Biden administrations and the unabated surge in COVID-19 infections locally and abroad.

Source: Kenanga Research - 8 Jan 2021