KUALA LUMPUR, May 7 — Malaysia’s economic growth is expected to reaccelerate in the second half of the year following the lag impact of expansionary fiscal and monetary strategy, said Public Investment Bank Bhd.

The investment bank said overall sentiment would also be boosted by the rapid Covid-19 vaccination drive, which should see the country achieve herd immunity by year-end.

"This could trigger a recovery in contact-sensitive sectors like tourism and services on top of sustained output generation by key sectors like manufacturing, construction and agriculture, thanks to the decision to allow uninterrupted operation of these sectors,” it said in a research note today. 

The investment bank said six Covid-19 fiscal stimulus programmes introduced by the government worth more than 20 per cent of gross domestic product or RM340 billion would push output to jump markedly, potentially pushing the economy to exceed pre-crisis levels.

Public Investment Bank said economic growth would also be supported by the accommodative interest rate environment amid a rebound in inflation that will be driven more by global cost-push factors, especially oil.

On Thursday, the overnight policy rate (OPR) was left unchanged by the Monetary Policy Committee (MPC) — a decision that was in line with the bank’s and market’s expectations.

The OPR has been left steady since September 2020, driven by, among others, generous fiscal assistance following six Covid-19 fiscal stimulus programmes introduced, which will be rolled out fully this year and is expected to have a positive spillover impact on the economy. 

Public Investment Bank said other growth drivers might come from the creation of at least 500,000 jobs through the private-public initiatives that will boost income and consumption activity further.

"The data-dependent strategy by the central bank following the lag impact of stimulus spending and accommodative interest rate environment should see the OPR remaining steady in the first half of the year,” it added.  

However, Public Investment Bank said downside risks might come from hiccups in the Covid-19 vaccination drive, no thanks to a low take-up of about 30 per cent of the population currently. 

It noted that a less-than-effective implementation of Covid-19 vaccination for the population might delay the recovery of contact-sensitive sectors, no thanks to the delay in the opening of borders and inter-state travel.

"The impending start of US-China trade talks is also a going concern as the negotiation period is expected to be a lengthy one though the start of it has been deferred,” said the investment bank. 

Meanwhile, AmBank Research said the policy rate is expected to stay at current levels throughout 2021, although there is a 10 per cent to 20 per cent window for rates to be repriced upwards in the second half of the year by 25 basis points. 

"At this point in time, there is no real urgency for Bank Negara Malaysia to reprice the current policy rate. Recent economic indicators showed improving momentum of the economic performance,” it added.

While inflation is expected to spike in 2Q21, AmBank Research said it should stabilise thereafter.

"Higher inflation would primarily come from the cost side of the equation. Inflation is projected around 3.0 per cent-3.5 per cent with GDP for 2021 expected to be around 6.0 per cent with the downside at 5.0 per cent and upside at 7.0 per cent,” said AmBank Research.

Moody’s Analytics said despite the vaccination programme, downside risks stemming from the threats of Covid-19 outbreaks and renewed lockdowns are more elevated, threatening Malaysia’s economic recovery.

"Vaccine hesitancy, if not properly managed, could further rock confidence and delay herd immunity,” it said in a research note, adding that the recent surge in the US Treasury yields has ripple effects on the emerging economies, including Malaysia.

It noted that a rise in the US Treasury bond yield could trigger a major selloff in emerging market assets and affect Malaysia’s financial stability.

"In view of this, there is limited room for changes in the monetary policy rate. BNM must factor the risks of financial instability and a bumpy economic recovery. The bank is likely to maintain its accommodative stance until the end of this year but may defer to other targeted approaches to lift the economy,” it added. — Bernama