4Q20 bleak, but analysts optimistic on near-term recovery

KUALA LUMPUR The fourth quarter of 2020 (4Q20) outlook for Malaysia's economy remains bleak, but analysts are more optimistic on its near-term recovery. The return to negative industrial production growth for October confirmed RHB Investment Bank Bhd's (RHB) expectations of a weak 4Q20 gross domestic product (GDP) ahead. Based on RHB's estimations, the Conditional Movement Control Order (CMCO) implemented for much of 4Q20 weakens domestic demand and hence softens the domestic-oriented industries.

“While the ease of restriction in parts of the country post-December 7 could lead to some revival in production, we expect it would not be sufficient to offset the negative implication expected to be seen this quarter,” the research firm said.

“While 4Q20 outlook is bleak, we are more optimistic on near-term recovery. We expect some ‘revenge spending' to take effect.

“Segments such as food, beverages and tobacco could see some rebound amid increased demand as restaurant's operating hours are expanded and domestic tourism is allowed.

“In supporting this view, we have seen some nascent increase in mobility which are expected to increase in the next few weeks.”

Meanwhile, the softening in domestic-oriented is expected, however RHB also noticed trade-oriented segments weakening as well.

“This jive well with October exports data which shows weakening to 0.2 per cent year on year (y-o-y), compared to an increase of 13.6 per cent in September 2020, with the major culprit being weaker exports growth to China.

“If this trend continues, we could possibly see 4Q20 GDP growth being much weaker than in 3Q20.”

To note, RHB's GDP forecast is unchanged at -5.5 per cent y-o-y for 2020 with a rebound to 6.3 per cent for 2021.

“As it stands, Malaysia's Industrial Production Index (IPI) contracted by 0.5 per cent. The manufacturing sector softened, while mining output continued to record larger contraction.

“On the upside, electricity production improved.” On the other hand, while the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) projected that the full-year IPI to fall by -3.7 per cent in 2020, compared to 2.3 per cent in 2019, it is concerned that production activity could weaken in the current quarter which will affect MIDF Research's yearly growth forecast.