Monday, November 9, 2020

2021 GDP At 6% Lower Than Projected

 Affin Hwang Investment Bank Bhd (Affin Hwang Capital) expects Malaysia's Gross Domestic Product (GDP) to be at 6% by 2021, lower than the Ministry of Finance's (MoF) official forecast of between 6.5% and 7.5%.

In a research note today, the investment bank believes that uncertainty about the development of the Covid-19 pandemic will continue to be a downgrading risk to growth projections.

"If cases around the world continue to rise with the possibility of reintroducing containment measures, no emerging market including Malaysia will be spared from receiving this negative impact, especially when global economic growth is affected by global supply chain disruptions following the outbreak," he was quoted as saying. by Bernama.

Affin Hwang Capital said the GDP growth forecast by the MoF was based on a reasonable assumption for 2021 with Brent crude oil prices at about US $ 42 per barrel next year compared to US $ 40 per barrel by 2020, as well as the projected global GDP growth of 5.2%.

Nationwide inflation is projected to increase to 2.5% by 2021 with a target budget deficit of -5.4% of GDP.

Affin Hwang Capital also assumed that the downside risk was to lower private investment growth as it was highly correlated with uncertain external conditions.

He said, as foreign investors also faced similar challenges due to the spread of Covid-19 in their home countries, there was a risk of delays or delays in the implementation of their investments.

"This also explains the government's proposal to allocate RM69 billion for development expenditure with a focus on infrastructure and construction related projects with a high multiplier impact to support the domestic economy and the country's total investment growth by 2021," said Affin Hwang Capital.

He said, as much as RM67.3 billion of the RM69 billion allocation is in the form of direct allocation while the remaining RM1.7 billion for state governments and government-linked entities.

According to the bank, through the 2021 Budget, the government has increased the Covid-19 Fund by RM20 billion to RM65 billion for the implementation of programs and projects under economic stimulus packages and recovery plans.

"Let's say we include an additional RM20 billion for the Covid-19 Fund, a federal government budget deficit that has the potential of about -6.7% of GDP projection for 2021," said Affin Hwang Capital.