HSBC trims Malaysia’s GDP to 5.7%

Bank is still very optimistic about Malaysia’s outlook for 2021 due to its strong exports, FDI commitments and vaccination strategy

by SHAHEERA AZNAM SHAH / pic by MUHD AMIN NAHARUL

HSBC Holdings plc cut their 2021 growth projections for Malaysia after the government reimposed stricter measures to contain a surge in Covid-19 cases earlier this year.

The investment bank has revised Malaysia’s economic growth to 5.7% for 2021 from its earlier projection of 6.7% after recent data showed a slower than expected pace of recovery.

HSBC chief Asean economist Joseph Incalcaterra said Malaysia’s growth recovery momentum is expected to come into effect in the second quarter (2Q) of the year as investors will likely focus on the effects of a possible general election in the second half of the year (2H21) after the lifting of the state of emergency.

“We are still very optimistic about Malaysia’s outlook for the year due to its strong exports, foreign direct investment (FDI) commitments and vaccination strategy.

“But the outbreak at the beginning of last year does have an impact on the rosy growth outlook and we have to trim the GDP outlook to 5.7%.

“Although it is slightly below what the government is projecting, it is still quite an impressive outlook for Malaysia in terms of gaining back the economic loss from 2020,” he said at the HSBC Asean Outlook 2021 virtual press conference yesterday.

Incalcaterra expects Malaysia’s growth rebound to pick up momentum in 2Q once the Movement Control Order (MCO) ends.

“We should see a strong growth momentum when the quarter begins. What investors will be focusing on is the high likelihood of an election, though that has always been on the back of their minds.

“For bond investors, their focus will be on the fiscal consolidation trajectory and the government’s willingness to increase its revenue base and restore the debt-to-GDP trend back to 55%,” he said.

HSBC earlier predicted the national economy to grow by 6.7% this year, following an estimated contraction of 5.4% in 2020, amid the expectation that the effects of the MCO will gradually taper towards the end of the year.

According to Bank Negara Malaysia’s forecast, the country’s economic growth is expected to range between 6% and 7.5% in 2021.

Meanwhile, HSBC senior Asia currency strategist Joey Chew anticipates the ringgit to trade at around RM4 against the US dollar as positive developments tied to Malaysia’s trade flow have yet to be translated.

“We expect the ringgit to perform better as there have been some positive local developments that I think have been overshadowed by the Covid-19 resurgence.

“Some of these positive developments are the FDI and trade balance. Malaysia’s trade balance last year reached a record high despite the weak oil and palm oil prices earlier in the year.

“Malaysia’s trade balance has been strong even if we count all that. If we look at the Asian context, there were only two other countries that managed to have a record trade balance in 2020, which were Taiwan and Vietnam,” she said.

The local note maintained its upward momentum against the greenback yesterday, rising to RM4.13 as it continued to benefit from lower US yields.

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