Domestic support to drive 2021 economic recovery: MIDF Research

KUALA LUMPUR – Malaysia’s economy is set to recover next year, driven by domestic support, although headwinds in 2020 will continue to persist next year and weigh on growth expectation. 

In its 2021 market outlook presentation today, MIDF Research said that the Covid-19 pandemic will remain the biggest threat to economic recovery, followed by other issues, such as rising protectionism, geopolitical tension, political instability and volatility in commodity prices.

“Nevertheless, we opine that Malaysia’s economy will be able to grow by 7% year-on-year (y-o-y) in 2021, which falls in between Bank Negara Malaysia and the Finance Ministry’s growth target of 6.5% to 7.5%,” it said in a briefing today. 

It added that domestic demand is expected to drive economic recovery as economic activities resume and sentiments improve, while private consumption and private investments are expected to rebound next year. 

“Based on September 2020’s data, retail sales – which is a proxy to consumption – has managed to record a marginal growth of 1.1% y-o-y after six consecutive months of contraction.

“We forecast private consumption and investment to expand by seven per cent y-o-y and 8.3% y-o-y, respectively, in 2021,” it said. 

It added that the government will continue to play important roles in pushing the economy further, while global trade is expected to be on a better footing next year. 

“Gradual return in global activities as countries emerge from Covid-19 shocks will result in more trade flows next year.

“The robust performance of China’s economy added support to our expectation as the country is our largest trading partner,” it said. 

The research house also said that growth is to be observed in all economic sectors, while expansion is likely to take place starting from the services sector – which is the largest contributor to Malaysia’s economy – right to the construction sector, which has the lowest share of the nation’s total gross domestic product.  

“Employment is expected to pick up. The continued economic recovery as businesses reopen and resume operations post-Covid-19 will contribute to further improvement in the labour market,” it said. 

It added that inflationary pressure is largely muted in 2020 due to weak demand and government rebates via discounts on electricity bills, which will continue until year-end.

“However, looking ahead, the rebate is unlikely to continue. Global crude oil prices are also expected to inch higher next year at an average of US$51 (RM207) per barrel for brent crude,” it said. 

It stressed that the rise is due to the cost increase in housing, utilities and transport – the biggest component in the overall consumer price index (CPI) basket after food and beverages. 

“These factors have a significant impact on overall inflation.

“In addition, prices for most of the goods will also improve on the back of returning demand as the economy recovers, also facilitated by a low interest rate environment,” it said. – Bernama, December 3, 2020