PETALING JAYA: The gradual rollout of the Covid-19 vaccine is a key catalyst for global economic recovery in 2021 with Asia set to be an outperformer, anchored by China, which is projected to grow 8.2% in 2021, auguring well for Malaysia, Indonesia, Singapore and Thailand (MIST).
In a note, CGS-CIMB Research said there are five factors which will drive the differentiation in recovery speeds among MIST in 2021 â higher leverage to the cyclical recovery in manufacturing and trade, exposure to improving terms of trade including commodity prices, fiscal expansion and implementation, monetary policy space, and lower economic dependence on international travel and tourism.
âIn our view, the early stages of the gross domestic product (GDP) acceleration in 2021 favour domestically-dominant Malaysia and Indonesia, before transitioning to Singapore and Thailand, as post-vaccine mobility improves.
âAs a result, we have ascribed narrower end-2021 negative output gaps to Malaysia and Indonesia, which are projected to grow 7.5% (-5% in 2020), and 5.4% in 2021 (-2% in 2020) respectively in real GDP terms.â
The research house pointed out that having incurred weighted-average budget deficits of 10.6% of GDP in 2020, governments around the world have pledged to continue fiscal expansion in 2021.
On this, it expects Singapore, the most fiscally interventionist this year, to lighten the pressure on the fiscal pedal in 2021, while Malaysia, Indonesia and Thailand will maintain relatively stable budget deficits as a share of GDP.
As for central bank policy, CGS-CIMB expects Bank Indonesia to cut its seven-day reverse repo rate by 25 basis points in first-quarter 2021 while policy rates in Malaysia and Thailand are set to remain on hold next year.
âCentral banksâ actions beg the question: is debt tomorrowâs problem? We think so. Sovereign debt in advanced economies will rise 20% pt to 125% of GDP by 2021 and by 10% pt in developing economies to 65% of GDP. Likewise, stretched balance sheets are likely to boost household and corporate leverage.
âBetween the duelling forces of higher private and public sector financing requirements and reflation expectations against shortterm interest rates anchored by central banks through 2021, we expect higher yields for long-maturity government bonds and a mild steepening of the yield curve.â
Amid the environment of a synchronised global economic recovery, low yields, disinflation and ample liquidity, CGS-CIMB expects the MIST currencies to strengthen by 4% to 5% in 2021 against the US dollar, given widening growth, inflation and balance of payments differentials.
âPolitical flux is a risk to our rosy outlook for Malaysia, where the ruling alliance holds the slimmest of majorities and has promised to hold elections once the health crisis is over, while escalation of street protests in Thailand could delay the countryâs economic recovery,â it concluded.
