KUALA LUMPUR – Malaysia’s economic recovery this year and beyond is beginning to crystallise with the country’s effective Covid-19 vaccine roll-out.
However, much of the rebound will also depend on the recovery of export channels to the West and higher commodity prices, like that of oil.
AxiCorp Financial Services Pte Ltd chief global market strategist Stephen Innes told The Vibes that there is a fine line as to what the government should do as far as fiscal prudence or sound fiscal management is concerned.
“And right now, they (the government) have thrown a lot of money at the economy.”
Nevertheless, he said, higher oil prices have come at an opportune time for Malaysia.
“Some of the proceeds from higher oil prices can be used to spend on infrastructure, which is a great route to create more employment, and that is what is really needed.”
Brent crude was up 31 cents, or 0.5%, at US$63.59 (RM261.93) a barrel on Friday, while crude oil was up almost 0.3% at US$61.60 a barrel at the opening bell on Monday.
And, every US$1 increase in Brent crude prices is associated with a rise in real gross domestic product of approximately RM646 million, an increase in the consumer price index of 0.03, and a jump in annual fiscal revenue of some RM339 million.
Innes said the oil price recovery is an effect of vaccinations, lockdowns and personal safeguards taken against the coronavirus.
“As fear of the virus drops and people drive more, oil prices increase as consumers use more fuel.”
However, he said, it does not discount the fact that the Malaysian economy has been impacted by multiple rounds of movement curbs, which continue to weigh on key service sectors and have affected several key commodity exports.
“But this is part and parcel of what Covid-19 has done to the political psyche, where the first response is a lockdown, which hits pockets of the economy. Travel and services continue to be hit the hardest.
“Travel is unquestionably the works where AirAsia basically took it on the chin, and restaurants and related services were severely hampered due to travel restrictions and the government-imposed MCO (movement control order).”
Despite these setbacks, he is convinced that the vaccine roll-out is the game changer that will lead to movement restrictions being fully lifted.
Moving forward, Innes expects Malaysia’s GDP rebound to be consistent with expectations around the globe.
“Given the favourable outlook on both export and commodity channels, I think 5.1% is achievable and may even be conservative.”
The World Bank has forecast the country’s economy to grow 6.7% in 2021 after contracting 5.8% last year. Previously, the GDP contraction forecast for 2020 was 4.9%.
On the ringgit’s performance, Innes said the local note is trading weaker in line with a stronger US dollar, with US yields climbing as the market starts to price in a faster recovery in the American economy, which is favourable.
“Meanwhile, banks, and value and cyclical stocks should continue to shine as the economy reopens.” – The Vibes, March 24, 2021
