OCBC TREASURY RESEARCH - Malaysia 13 August 2021 - OCBC Bank
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
OCBC TREASURY RESEARCH
Malaysia
13 August 2021
Slash and Cut
Wellian Wiranto Malaysia’s central bank slashed its GDP forecasts in half
+65 6530 6818 • While its Q2 GDP came above market expectations at 16.1% yoy, Malaysia’s
WellianWiranto@ocbc.com economic prospects have become so impacted by the ongoing Covid-19
resurgence fight that the central bank has essentially cut its full-year 2021
growth forecast in half, from 6.0-7.5% before to now 3.0-4.0%.
• To us, the severe slashing of growth outlook may be a prelude to a potential
cut in the policy rate when the BNM meets next on Sep 9. Even as it pointed
out a gradual recovery to come in Q4 and growth acceleration into next year,
the bodily blows that the economy is suffering through now, as reflected in
the new downbeat forecast, necessitates a response in the form of easing.
• Having kept the OPR unchanged in July, there is always the risk of BNM
assuming the holding stance once again, of course. If the virus situation
takes a fortunate turn, such that the long-afflicted and economically crucial
Klang Valley can reopen in the next few weeks, BNM might be comforted
enough of the recovery pace ahead. Meanwhile, if the political situation
becomes even trickier after the scheduled no-confidence vote on Sep 7, the
need for an OPR hold to anchor market stability cannot be dismissed as well.
While it lasted
We knew that base effect provided by Q2 2020’s deep slump of -17.2% yoy
would easily deliver Malaysia a symbolic boost of double-digit growth in Q2
this year on a yoy basis. We also felt that the strength in exports may have
been under-appreciated by the market consensus, and hence we had
pencilled in a forecast of 15.7%yoy, compared to the 14.1% that market
median had in mind. Still, we were pleasantly surprised by the actual data of
16.1% yoy, which came above what we expected.
At a time when the country has been afflicted by prolonged pandemic
resurgence, protracted restrictions and, not to mention, precarious politics,
the GDP beat could be a form of solace just weeks ahead of Malaysia’s 64th
birthday.
Looking into the details, the recovery in private consumption during the
period is notable, at 11.6% yoy growth and adding a chunky 6.6 percentage
points (ppt) to headline growth. Given the lack of mobility restrictions at least
at the start of Q2, this is in line with the recovery in labour market at that time,
which together with EPF withdrawals and cash handouts, would have
bolstered household spending.
Meanwhile, investment activities would have followed a similar pre-
resurgence uptick in sentiment, as well. The category rebounded by 16.5% yoy
in Q2, compared to 3.3% yoy shrinkage in the previous quarter. Notably, it
Treasury Research & Strategy 1OCBC TREASURY RESEARCH
Malaysia
13 August 2021
also marked the first time that investments actually grew on an annualized
basis since late 2018.
Source: OCBC, Bloomberg.
As alluded to above, the ‘hero’ of the expansion during the quarter was really
the exports sector, which grew 37.4% yoy and contributed nearly 23ppt to
headline growth. Netting out the imports effect, the trade sector still
contributed a sizable 1.76ppt to headline growth in Q2, compared to just
0.05ppt in the previous quarter.
The “change in stocks” expenditure component of GDP tells a slightly mixed
picture, however. On paper, the segment that tells us how much inventories
build-up is contributing to the overall GDP growth shows a straightforward
uptick, adding a significant 2.93ppt to headline growth.
However, having such a high inventory build-up during the period could well
reflect how businesses were caught blindsided by the turn of events, ordering
supplies because of good demand at the start of the quarter, only for the
pandemic to take a turn for the worse soon after. Indeed, going forward, the
high level of inventories may presage heavy drawdowns in the coming
quarters and present net drag on the overall growth.
Overall, as encouraging as the numbers for the headline and most of the
segments were, they do not tell us much about what the ongoing situation is,
given the big shift of events since then.
The pandemic resurgence appears to remain a big problem even as we step
into the second half of Q3. Despite more than two months of lockdowns in
one form or another, the country continues to break record-highs in terms of
the incremental daily cases, with yesterday’s 21,668 print being a case in
point. While the fortunate thing is that the vast majority of cases are either
asymptomatic or do not result in serious health threats, the sore reality that
restriction orders may have to continue for a while more because of the
Treasury Research & Strategy 2OCBC TREASURY RESEARCH
Malaysia
13 August 2021
inherent transmissivity of the virus has and looks likely to continue to weigh
on the economy.
Source: OCBC, Bloomberg.
Indeed, given the protracted nature of the resurgence, we are downgrading
our Q3 growth forecast to -2.3% yoy compared to -0.8% before. On a
sequential basis, that marks an expectation of a contraction of 1.5% in
seasonally adjusted terms. Given that Q2 sequential growth was already -2.0%,
if our expectation proves to be right, it will also mean that Malaysia would
have registered a recession – as defined by two consecutive quarters of
negative growth – by Q3. Overall, even with the beat in Q2 GDP, our full-year
GDP forecast now stands at 3.6% yoy, compared to 4.0% before.
The lurking threat of the pandemic is apparent when we consider how BNM
has revised down its 2021 growth forecast significantly. From a lofty 6.0-7.5%
before, the central bank now sees growth coming in at 3.0-4.0%, essentially
downshifting its outlook by half. To be sure, as BNM noted today in its press
conference, growth is expected to trough in Q3 and start to show recovery in
Q4, with a potential for acceleration in 2022. However, as the central bank’s
governor acknowledged, the near-term outlook is “highly dependent on Covid
risks and there remains significant uncertainty to growth outlook.”
Taking the various moving parts into account, we continue to see a better-
than-even chance of BNM cutting its OPR benchmark by 25bps when the MPC
meets next on Sep 9. While it did keep its rate unchanged in July despite the
challenging situation even then, we argue that the economic conditions have
not improved enough to warrant a longer wait-and-see stance.
Even if growth might start to come back by Q4 as it envisions, the protracted
lockdown that the country has been experiencing has hurt Q3 growth badly
enough to necessitate some form of easing. Already, even as she noted that
the record low benchmark rate has continued to provide stimulus, the
governor also pointed out that it has the policy space to respond if necessary.
Treasury Research & Strategy 3OCBC TREASURY RESEARCH
Malaysia
13 August 2021
To be sure, the weeks ahead remain a crucial period that might shift the
outlook considerably. On the plus side, the rapid pace of vaccinations across
the country offers hope that the pandemic curve might start to be flattened.
Already, with Malaysia delivering as many as half a million shots per day on
average, nearly 30% of the population has become fully inoculated. Any
reopening will be especially crucial for the Klang Valley region which
contributes 40% of the GDP.
Source: OCBC, Bloomberg.
Less fortunately, however, there is a less positive risk scenario to our call for a
rate cut by the BNM on Sep 9. It has to do with a event that is supposed to
take place just two days before.
PM Muhyiddin Yassin has scheduled a confidence vote in the parliament on
Sep 7, even if the vote might take place before that due to urging by the
opposition and others. Given how fluid the political situation has been and
how the vote and its aftermath might unsettle the relative nonchalant market
reactions to the often-dramatic development thus far, there is some
possibility that BNM might opt to keep the OPR unchanged as an anchor of
stability at that time.
Treasury Research & Strategy 4OCBC TREASURY RESEARCH Malaysia 13 August 2021 Treasury Research & Strategy Macro Research Selena Ling Tommy Xie Dongming Wellian Wiranto Howie Lee Head of Research & Strategy Head of Greater China Research Malaysia & Indonesia Thailand & Commodities LingSSSelena@ocbc.com XieD@ocbc.com WellianWiranto@ocbc.com HowieLee@ocbc.com Carie Li Herbert Wong Hong Kong & Macau Hong Kong & Macau carierli@ocbcwh.com herberthtwong@ocbcwh.com FX/Rates Strategy Frances Cheung Terence Wu Rates Strategist FX Strategist FrancesCheung@ocbc.com TerenceWu@ocbc.com Credit Research Andrew Wong Ezien Hoo Wong Hong Wei Seow Zhi Qi Credit Research Analyst Credit Research Analyst Credit Research Analyst Credit Research Analyst WongVKAM@ocbc.com EzienHoo@ocbc.com WongHongWei@ocbc.com ZhiQiSeow@ocbc.com This publication is solely for information purposes only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without our prior written consent. This publication should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities/instruments mentioned herein. Any forecast on the economy, stock market, bond market and economic trends of the markets provided is not necessarily indicative of the future or likely performance of the securities/instruments. Whilst the information contained herein has been compiled from sources believed to be reliable and we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee and we make no representation as to its accuracy or completeness, and you should not act on it without first independently verifying its contents. The securities/instruments mentioned in this publication may not be suitable for investment by all investors. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. This publication may cover a wide range of topics and is not intended to be a comprehensive study or to provide any recommendation or advice on personal investing or financial planning. Accordingly, they should not be relied on or treated as a substitute for specific advice concerning individual situations. Please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. OCBC Bank, its related companies, their respective directors and/or employees (collectively “Related Persons”) may or might have in the future interests in the investment products or the issuers mentioned herein. Such interests include effecting transactions in such investment products, and providing broking, investment banking and other financial services to such issuers. OCBC Bank and its Related Persons may also be related to, and receive fees from, providers of such investment products. This report is intended for your sole use and information. By accepting this report, you agree that you shall not share, communicate, distribute, deliver a copy of or otherwise disclose in any way all or any part of this report or any information contained herein (such report, part thereof and information, “Relevant Materials”) to any person or entity (including, without limitation, any overseas office, affiliate, parent entity, subsidiary entity or related entity) (any such person or entity, a “Relevant Entity”) in breach of any law, rule, regulation, guidance or similar. In particular, you agree not to share, communicate, distribute, deliver or otherwise disclose any Relevant Materials to any Relevant Entity that is subject to the Markets in Financial Instruments Directive (2014/65/EU) (“MiFID”) and the EU’s Markets in Financial Instruments Regulation (600/2014) (“MiFIR”) (together referred to as “MiFID II”), or any part thereof, as implemented in any jurisdiction. No member of the OCBC Group shall be liable or responsible for the compliance by you or any Relevant Entity with any law, rule, regulation, guidance or similar (including, without limitation, MiFID II, as implemented in any jurisdiction). Co.Reg.no.:193200032W Treasury Research & Strategy 5
You can also read
