Slow airport volume recovery expected in Malaysia


MALAYSIA will see an improvement in infrastructure which will drive economic growth this year, but the recovery in the airport passenger volume will be a long process due to limited international traffic.

According to a report by Moody’s Investors Service Inc, economic growth in most Asian countries will rebound this year which will fuel an improvement in the operating performance of rated infrastructure companies.

Government stimulus measures will further support the increase in infrastructure spending which is done to boost the economy and employment in the middle of the pandemic.

“Most governments in the region aim to increase infrastructure spending to power their economies by supporting demand and employment in the wake of the coronavirus.

“For example, government budgets for India, Indonesia and Malaysia have a significant allocation to infrastructure in 2021,” it said.

For Malaysia, the firm noted that the government has introduced measures in the national budget for this year which indicates that it is prioritising a strong social safety net, labour market stability and infrastructure investment, which will support domestic demand and a recovery in growth.

It highlighted that key development projects in economic corridors in Johor, Kelantan, Kedah, Sarawak and Sabah will continue, while public infrastructure pro- jects will strengthen economic connectivity.

Fiscal deficit for Asian countries will remain wider for a longer period to support government stimulus where Malaysia’s deficit for this year is estimated to be -5.5%. The recovery of airports remains uncertain for the year and as for Malaysia, the firm said monthly domestic passenger numbers remain at around 10% of pre-coronavirus levels for Malaysia Airports Holdings Bhd (MAHB) as a result of restrictions on interstate travel.

“Upon relaxation of these restrictions — which would likely be linked to a vaccine rollout — we expect domestic traffic to recover gradually on the back of underlying demand.

“However, a sustained improvement in international traffic — which represents close to 50% of all passenger traffic pre-coronavirus — will take longer to materialise,” it said.

Meanwhile, on power utility demand, it said the recovery in electricity demand for Malaysia had followed a different trajectory from the rest of the region which recorded gradual growth in demand.

The reimposition of lockdown in the second half of 2020 following the second wave of coronavirus infections led to the contraction in demand.

According to the report, power demand in Malaysia remained in the negative territory throughout last year where in the first quarter of 2020 (1Q20), it stood at -2% before plunging to around -13% in 2Q20 and then came in at around -3% and -1% in 3Q20 and 4Q20 respectively.

“The recovery next year would be dependent on the government’s approach to contain the pandemic and the availability of vaccines,” said Moody’s.

It added that cashflow will improve for rated issuers this year as it expects most Asian infrastructure companies to maintain a substantial level of capital spending, driven by fiscal stimulus and government mandates.

“Particularly, increasing infrastructure spending for road networks is one of the common themes in government stimulus programmes across the region. As a result, the leverage of most rated infrastructure companies, particularly transportation companies, is likely to remain high.”

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