Malaysia GDP poised for 5.6% rebound in 2021 despite Covid-19 wave: AMRO

DESPITE a renewed wave of Covid-19 infections, Malaysia is still poised for a strong rebound in 2021 and 2022, the Asean+3 Macroeconomic Research Office (AMRO) said in its annual consultation report on Malaysia on Tuesday.

Its forecast is for 5.6 per cent growth in 2021, strengthening to 6.2 per cent growth in 2022.

In a media briefing, AMRO chief economist Khor Hoe Ee acknowledged that "a lot of things have changed" since the report was prepared a few months ago, based on a visit late last year and data and information available up to March 19.

Nonetheless, while AMRO has shaded down its projections for Malaysia's growth - and that of other countries - since the start of the year, the expectation is still for a strong rebound, driven by the external sector, he said.

AMRO country economist for Malaysia Diana del Rosario said that while high-frequency indicators such as exports and industrial production do suggest that targeted lockdowns in January and February continued to dampen growth, Malaysia is still on track to rebound over the rest of the year.

The 5.6 per cent forecast takes into account current movement restrictions, though it remains subject to how the pandemic could evolve. Dr Khor noted that the current restrictions are more targeted than earlier ones, and should thus prove less of an obstacle to recovery.

In its report, AMRO also assessed Malaysia's banking system as being in a strong position to weather increased credit risks, with economic relief measures having moderated the build-up of non-performing loans.

Stress-tests by AMRO and Bank Negara Malaysia indicate that banks will be able to absorb reasonable increases in loan impairments, thanks to strong capital buffers.

AMRO's test covered eight major Malaysian banks that account for some three-quarters of the banking system's assets. Assuming impaired loan ratios ranging from 3 to 8 per cent - taking a cue from the global financial crisis, when loan impairments ranged from 4.4 to 8.5 per cent - the stress test found that their capital buffers, while reduced, would still remain above regulatory thresholds.

Malaysia's recovery has been enabled by swift economic support and easy monetary policy, said AMRO. But as the situation stabilises, there will be a need to restore fiscal buffers.

AMRO's view is that reforms to broaden the tax base will be needed to lower the fiscal deficit, including the possible reinstatement of the goods and services tax. But such moves would have to be taken carefully so as not to jeopardise the recovery.