KUALA LUMPUR, Jan 13 — MIDF Amanah Investment Bank Bhd (MIDF Investment) remains optimistic for 2021 as the situation brought by Covid-19 pandemic is improving albeit with some short-term pitfalls.

The investment bank said the economy was expected to recover this year, driven by domestic demand and supported by government spending especially with the highest development expenditure in history.

“Nevertheless, we are aware of the short-term downside risk such as the resurgence of new Covid-19 cases globally and the economic impact as well as Malaysian banks’ asset quality following from the ending of the loan moratorium.

“Having said that, our baseline assumes that the management of this potential pitfall will be better given the experience governments and regulators have in dealing with the Covid-19 pandemic,” MIDF Investment said in a note today.

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The movement control order (MCO) and a nationwide state of Emergency were announced on Monday and yesterday, respectively, to combat the coronavirus spread that was threatening Malaysia’s healthcare system.

According to projections by the Health Ministry, with the current R-naught (RO) of 1.1, it is expected that Malaysia could reach 5,000 daily new cases by the second week of April and 8,000 daily new cases by the fourth week of May.

“Hence, we are not surprised that these announcements. The aim is to bring R0 down to 0.335,” said MIDF Investment, adding that it believed that there would be no impact to its economic growth forecast from the Emergency declaration as economic activities would continue as usual.

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The investment bank estimated the impact of the two weeks of MCO in five states namely Selangor, Penang, Johor, Melaka and Sabah and all federal territories, together with a Conditional MCO (CMCO) in six other states except Perlis and Sarawak could lower the economic growth by up to 0.8 percentage point.

In other words, MIDF Investment said, the various forms of MCO would result in a slower increase in Malaysia’s economic growth this year at 6.2 per cent year-on-year versus its current projection of 7.0 per cent.

Cumulatively, all states and federal territories affected by the MCO and CMCO contribute almost 90 per cent of Malaysia’s GDP.

“Even though the movement restrictions are dubbed as MCO, it is perceived to be less strict than the first one we had last year especially with more essential economic sectors, such as manufacturing, construction and, trading and distribution, being allowed to operate,” it added.

Similarly, MIDF Investment said, it did not see any impact from the Emergency on corporate earnings and believed that the new MCO would help to bring down the rate of Covid-19 infections to an acceptable level sooner rather than later.

“Hence, we reckon the new MCO might alter the trajectory of Malaysia’s economic recovery in only a slight negative way. Therefore, the cascading impact on corporate earnings would also be marginal,” it added. — Bernama