PETALING JAYA: With the economy expected to show some recovery in the second half of the year, economists said there could be headwinds next year that could impact the revival of the country’s economic growth.

The resurgence and fears of the outbreak of Covid-19, another round of US-China trade spat, lingering uncertainties and geopolitical tension may put a dampener on Malaysia’s gross domestic product (GDP) growth next year.

Nonetheless, economists are projecting a GDP growth of between 3.5% and 6.5% growth for next year.

This compares with a contraction of between 1% and 3% in 2020.

Based on Bank Negara’s estimate, the economy is expected to be between 2% contraction and 0.5% growth this year.

As this is the case, some economists expect the key benchmark rate - the overnight policy rate (OPR) - to stay low throughout next year.

Bank Negara, at its latest policy meet, had slashed the benchmark interest rate to an all-time-low of 1.75% since 2004, a clear signal of the need to reinvigorate consumption and investments.

The OPR was cut by 25 basis points (bps) from 2% earlier, marking it the fourth round of cuts this year.

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Bank Islam chief economist Mohd Afzanizam Abdul Rashid told StarBiz that he has projected the GDP to grow by 3.5% in 2021 from an estimated 1.5% contraction this year.

“In the absence of a vaccine for the virus, we foresee it will be quite difficult to open up our borders.

“Therefore, tourism-related industries will not be fully operational as the number of foreign tourists is expected to be scanty.

“Given the industry’s interlinkages with other economic sectors, the Malaysian economy is expected to grow at below potential level next year.

“This necessitates the overnight policy rate to stay low.

“Our view is that the OPR should stay unchanged at 1.75% till next year before the central bank starts to embark on policy normalisation in 2022 and beyond.”

AmBank Group chief economist and member of the economic action council secretariat Anthony Dass (pic below) said the base case forecast for GDP growth was minus 2% and the downside was at minus 5% for 2020.
 

For next year, he said the GDP growth is forecast to be at 6.5%.

This would be supported by fiscal, monetary and financial measures, but the downside risks in 2021 remain.

“Challenges will arise from the risk of the Covid-19 virus relapse.

“There is also the geopolitical tension, political and trade issues.

“Besides external headwinds, domestic challenges remain, ” he said.

On the OPR outlook, Dass said it is more likely to stabilise around 1.50% from the current 1.75% by the end of the year.

Going into 2021, he said on the back of an improving economic outlook that should see strong growth and pick up in inflation, there is room for OPR to rise by as high as 50 bps sometime in the second half of next year. “However, should uncertainties continue into 2021, then the possibilities for rate hike will be much lower, ” Dass noted.

Meanwhile, OCBC Bank economist Wellian Wiranto (pic below) said that by the fourth quarter of this year, he expects to see positive economic growth, enough for 2020 GDP growth to be about minus 1%.
 

“On the flip side, investment activities are likely to remain curtailed as businesses remain reluctant to commit to big investment projects in particular.

“In between, consumption will be broadly mixed. While stimulus measures help to put a floor on consumption, the upside in the near term will be limited by challenges in employment prospects as well as potential virus resurgence fears.

“Overall, by 2021, we see a broader normalisation in activities that would be enough to get growth going back to 4.2%, ” he said. Besides lower interest rates, to stimulate the economy amid the Covid-19 pandemic, the government had unveiled stimulus packages worth a total of RM295bil, namely the RM260bil Prihatin Rakyat Economic Stimulus Package and RM35bil National Economic Recovery Plan.

https://www.thestar.com.my/business/business-news/2020/07/13/economy-seen-rebounding-next-year