M’sia’s LI point to recovery, but expect some weakness in 1Q21
KUALA LUMPUR: Malaysia’s Leading Index (LI) point to recovery, but analysts expect to see some weakness in the LI especially in the first quarter of 2021 (1Q21), with the imposition of Movement Control Order (MCO) 2.0 in almost all states in January to February 2021.
The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) recapped that Malaysia’s LI rose at a faster pace of 7.1 per cent year on year (y-o-y) in November 2020 which pointed to recovery in Malaysia’s economic activities particularly in the first half of 2021 (1H21).
It further saw that on a month-on-month (m-o-m) basis, the LI rebounded to 0.4 per cent m-o-m, supported by increased real imports of semiconductors particularly due to healthy demand for electronic integrated circuit.
“There was some improvement in the economic conditions as reflected by the slower -2.3 per cent y-o-y decrease in the Coincident Index, driven by the higher real contributions to the Employees Provident Fund (EPF),” the research arm said.
“We could expect to see some weakness in the LI especially in 1Q21 with the imposition of MCO 2.0 in almost all states in January-February 2021 to contain the resurging Covid-19 infections.
“However, the development of vaccines will boost economic sentiment which helps the recovery in the economic growth going forward.
“Thus far, looking at the trend in the LI, we could anticipate for Malaysia’s economy to continue recovering in 2021 although the pace of growth could be dragged down by the MCO 2.0 restrictions.”
On exports, MIDF Research saw that it fell in 2020 but it was not not significantly worse than 2019. Exports declined 1.4 per cent y-o-y in 2020, softer than MIDF Research’s forecast of -2.5 per cent y-o-y.
Similarly, imports recorded a decline of 6.3 per cent y-o-y, not far from the research arm’s estimate of -6.8 per cent y-o-y.
“Overall, total trade fell 3.6 per cent y-o-y. As imports fell at faster rate than exports, trade surplus expanded by 26.9 per cent y-o-y, valued at RM184.8 billion.
“Malaysia’s exports benefitted from the fast recovery in China’s economy which increased demand for products such as electrical and electronics (E&E).
“For December 2020 alone, Malaysia’s exports growth increased to three-month high of 10.8 per cent y-o-y while imports rebounded to positive territory of 1.6 per cent y-o-y after nine consecutive months of negative growth.”
On the overnight policy rate (OPR), MIDF Research recalled that Bank Negara Malaysia’s (BNM) Monetary Policy Committee (MPC) decided to maintain it at 1.75 per cent as the current level is deemed appropriate and accommodative to support the economy.
The decision was in line with the research arm’s expectation.
“BNM expects for Malaysia’s economy to pick up from 2Q21 onward when the current restrictions from the imposition of MCO 2.0 will be eased.
“The recent tightening of restriction is a temporary challenge to the economy, particularly in the early part of 2021.”