KUALA LUMPUR, Aug 17 — Research houses have reduced their gross domestic product (GDP) outlook for 2020 but improved their forecast for 2021.

This comes after Bank Negara Malaysia (BNM) revised its 2020 growth forecast downward to between -5.5 per cent and -3.5 per cent from -2.0 per cent and 0.5 per cent, mainly to reflect the severity of the impact of COVID-19 pandemic.

Malaysia’s GDP contracted at a record rate of -17.1 per cent year-on year (yoy) in 2Q20 (+0.7 per cent yoy in 1Q20), exceeding the previous low of -11.2 per cent yoy in fourth quarter 1998 (4Q98).

Kenanga Research in a note said the sharper-than-expected and record high contraction in the 2Q20 GDP of the core sectors (services, manufacturing and construction) highlights risk to the growth recovery and the underlying structural weakness of the economy.

"Given the current weaker growth trajectory and risk to growth, we have reduced our second half (2H20) GDP growth forecast to -3.7 per cent (initial projection: -2.3 per cent) and 2020 growth forecast to -5.9 per cent (initial projection: -2.9 per cent; 2019: 4.3 per cent). 

"We have also adjusted our growth projection for 2021 to 5.1 per cent from 4.1 per cent previously,” it said.

It also said given the relatively upbeat tone by BNM on the recovery outlook, there is a higher probability that the central bank would keep the overnight policy rate (OPR) unchanged at 1.75 per cent at its September’s Monetary Policy Committee (MPC) meeting.

Nevertheless, there is still room for BNM to lean towards further monetary easing should the recovery weaken, said the research firm.

Meanwhile, CGS CIMB has downgraded its GDP forecast to -4.0 per cent in 2020 but expects a rebound of +7.5 per cent in 2021 (BNM: +5.5 per cent to 8.0 per cent in 2021).

"We revise our OPR call and expect a 25 basis points rate cut in September to cushion against downside risks to economic recovery and labour markets,” it said in a research note. — Bernama