CMCO 2.0 may keep Malaysia's economy in contraction in 4Q — CGS-CIMB

KUALA LUMPUR (Nov 14): CGS-CIMB Securities expects the ongoing implementation of the Conditional Movement Control Order (CMCO) 2.0 since Oct 14 to keep Malaysia’s economy in contraction in the fourth quarter of 2020 (4Q).

In a research note yesterday, it said the contraction in the country's Gross Domestic Product (GDP) moderated significantly to 2.7% year-on-year (y-o-y) in 3Q as economic activity rebounded strongly on a sequential basis following the transition to the Recovery MCO (RMCO) in June.

Malaysia's economy posted a contraction of 17.1% y-o-y in 2Q 2020.

“We reiterate our full-year GDP projection of -5% in 2020 while Bank Negara Malaysia (BNM) has moved its point forecast guidance for 2020 to the weaker end of its -5.5 to -3.5% forecast range.

“Looking ahead, we are in agreement with BNM that economic growth is likely to recover strongly in 2021 with the Central Bank revising its GDP forecast to between 6.5 and 7.5%, from 5.5 to 8%, on the back of fiscal and monetary stimulus tailwinds,” said CGS-CIMB Securities.

It said while the economy would likely trail its pre-COVID-19 trend until 2021, the recent BNM policy statement indicated that current monetary settings are adequately supportive.

“We reiterate our end-2021 Overnight Policy Rate forecast of 1.75%, implying an extended hold in the benchmark interest rate,” it added.

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