Maybank slashes 2021’s GDP, KLCI target

The country’s GDP is likely to grow 4.2% this year compared to its previous forecast of 5.1%, says economist


MAYBANK Investment Bank Bhd has revised down its GDP forecast for Malaysia and the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) target for this year due to the worsening Covid-19 situation in the country and the enforcement of total lockdown to curb the spread of the virus.

Its chief economist Suhaimi Ilias said the country’s GDP is likely to grow 4.2% this year compared to its previous forecast of 5.1%, before rising to 6% in 2022.

“Taking into account the impact of this ins and outs of tighter restrictions and lockdowns, we have basically trimmed this year’s GDP forecast from the previous 5.1% to 4.2%.

“This is a reflection of the downgrade in forecast for non-manufacturing sectors in the supply side of the economy, as well as the downgrade in forecast for private expenditure component of aggregate demand,” he said yesterday during the group’s virtual briefing on economics outlook for the second half of the year.

For its sectoral GDP forecast, Suhaimi reduced the targets for the services sector to 4.2% from 5.1% previously, while agriculture and construction sectors’ GDP were lowered to 0.5% and 4.5% respectively from 1.8% and 10% previously.

The firm revised the forecast of manufacturing sector higher to 6.3% from initial forecast of 5.2%.

Private consumption is expected to record a growth of 3.9% this year versus 5.9% forecast previously, while public consumption is poised to record a higher growth of 5% from its previous estimation of 2.8%.

“We bumped up the forecast for manufacturing as well as external trade in line with the global economic recovery. We also raised forecast for public consumption in view of the additional economic stimulus package and direct fiscal injection,” he added.

Maybank Kim Eng regional equity research head Anand Pathmakanthan highlighted the firm had revised down its target for benchmark FBM KLCI to 1,720 points this year, reflecting 15 times forward earnings from its initial forecast of 1,820 points which was 16 times forward earnings.

He said the year-end target was discounted mainly due to the four phases of the National Recovery Plan (NRP) which phases out the recovery profile in terms of reopening of the economy this year.

“Recent newsflow also injects a lot of uncertainty as to when we can transition into the next phase of the plan because of the preconditions stated by the government,” he said.

Besides Perlis, Perak, Kelantan, Terengganu and Pahang, all states are still in the Phase 1 of the Movement Control Order under the NRP as daily cases recorded are still beyond 6,000.

The government had listed three indicators to move into Phase 2 of the plan, namely the daily average Covid-19 cases must drop below 4,000, the utilisation of beds in the intensive care unit should be at a moderate level and at least 10% of the population is fully vaccinated.

Inter-district and interstate travel under Phase 2 are still not allowed except for school teachers and students sitting for major exams.

Despite the moratorium requests, Anand expects the banking sector to record earnings growth of 21.1% year-on-year (YoY) in 2021 with a price-to-earnings ratio (PER) of 11.8 times and return on equity of 8.9.

The plantation sector is expected to record core earnings growth of 26.4% YoY with a PER of 19.6 times.

Maybank forecast Bank Negara Malaysia will maintain the Overnight Policy Rate (OPR) at 1.75% until the end of the year before increasing it by 25 basis points next year.

Suhaimi said the Monetary Policy Committee (MPC) might slash the benchmark lending rate if the lockdown is prolonged.

“We should be out of this Phase 1 of the recovery plan by mid-July or end of this month. If that does not happen, then I think it is a potential trigger for Bank Negara Malaysia to consider cutting the rate particularly in September,” he added.

The next MPC meeting is scheduled to be on Thursday.