Affin Hwang forecast 6.0% GDP growth in 2021


AFFIN Hwang Investment Bank Bhd (Affin Hwang Capital) forecasted Malaysia’s gross domestic product (GDP) to be at 6.0 per cent for 2021 – lower than the Ministry of Finance’s (MoF) official forecast of between 6.5 per cent and 7.5 per cent.

In a research note today, the investment bank believed uncertainties surrounding the development of COVID-19 pandemic would continue to be a downside risk to the growth outlook.

“If worldwide cases continue to rise with possible reintroduction of containment measures, no emerging markets, including Malaysia, can escape the negative impact to the global growth, especially when global economic growth could be distorted by global supply chain disruptions due to the outbreak,” it added.

Affin Hwang Capital noted that MoF’s GDP growth projection is based on a set of reasonable assumptions for 2021, with Brent crude oil price at about US$42 per barrel next year compared to US$40 per barrel in 2020, as well as a global GDP growth forecast of 5.2 per cent.

The country’s headline inflation is projected to trend higher to 2.5 per cent in 2021, with a budget deficit target of -5.4 per cent of GDP.

Affin Hwang Capital also expects the downside risk to be on lower growth in private investments, as this is highly correlated with uncertain external conditions.

With foreign investors facing similar challenges from the COVID-19 outbreak in their home countries, there are risks of delays or postponements in implementation of their investments, it added.

“This also explains the government’s proposal to allocate a substantial RM69 billion to development expenditure, focusing on construction-related and infrastructure projects with high multiplier impact to support the domestic economy and the country’s total investment growth in 2021,” said Affin Hwang Capital.

Of the RM69 billion allocation, RM67.3 billion will be in the form of direct allocation while the remaining RM1.7 billion is for state governments and government-linked entities, it said.

The bank also noted that under Budget 2021, the government had raised the COVID-19 Fund by RM20 billion to RM65 billion for implementation of programmes and projects under the economic stimulus packages and recovery plan.

“Assuming we include the additional RM20 billion to the COVID-19 Fund, federal government budget deficit could potentially be around -6.7 of GDP projected for 2021,” said Affin Hwang Capital.