KUALA LUMPUR: Malaysia's economy is expected to rebound 6.0 per cent next year from an expected contraction of 5.5 per cent this year, said United Overseas Bank (Malaysia) Bhd senior economist Julia Goh.
Commodity prices might trade higher particularly crude oil, Goh said, forecasting oil price to trade between US$50 and US$60 per barrel in 2021 in line with the global recovery.
This will help the ringgit to strengthen against the US dollar at 4.0 by the end of next year.
Goh said economic growth for 2021 would likely be uneven due to the lingering uncertainty of the pandemic (third wave Covid-19 resurgence) and the real effectiveness of the vaccine.
"However, economic recovery will continue backed by the improved external demand conditions, fiscal and stimulus support measures, the likelihood of unchanged interest rate and positive sentiment from the rollout out the vaccine," she said in a media briefing today.
"The outlook on the local currency will be supported by the recovery in China, which will lead other Asian currencies to strengthen further, higher crude oil prices that will reinforce positive sentiment towards ringgit and positive growth outlook and sustained current account surplus and expectation of steady interest rate," she said.
Goh, however, cautioned that the approval, effectiveness and efficacy of the Covid-19 vaccine could hamper growth next year.
"We are more conservative because we feel there is still a lot of issues. Many people need to be vaccinated before we can see a strong upside from that," she said.
Goh said the government's execution on development expenditure and infrastructure projects should determine the growth outlook for next year.
Another potential growth catalyst is the progress of large infrastructure projects such as the third Mass Rail Transit (MRT3), East Coast Rail Link (ECRL), West Coast Expressway, National Digital Infrastructure Plan (Jendela), Johor Bahru-Singapore Rail Transit System, and the Kuala Lumpur-Singapore High-Speed Rail (HSR).
"The pandemic risks persist, it is likely that the current standard operating procedures (SOPs) will remain at least until the first half of 2021. Some of developers and construction players say it would still be an operational challenge to comply with the SOPs," she said.
UOB also expects committed investments in the rubber, electrical and electronics and healthcare sectors to drive growth next year.
Goh said the feasibility of the travel bubble initially would come with SOPs and testing, quarantine that still could limit the free flow of travel.
"The ease travel bubbles will likely be confined to essential travels for instance to facilitate investments and trade as well as businesses, perhaps not so much on tourism at the beginning."
She said travel bubbles would be dependent on how soon Malaysia and its partners (other countries) can flatten the infection curve and mass-vaccination.
"The leisure type of activity could come in the second half of 2021 or towards the later part of 2021. It also depends on the vaccine how effective and how the country able to contain the infection."
For a start, she said travel bubbles could allow some potential investors to travel in and seal the agreements and implement/execute some of their investments.
She said the recent signing of the Regional Comprehensive Economic Partnership (RCEP) had signalled cooperation for "open to free and fair competition" towards regional integration.
"This will help to facilitate more trade and investments coming into the region for the region and Malaysia," she said, adding that this marked the broadening and deepening of economic and trade linkages as well as the integration among Asia Pacific economies.
She said the outcome of the recent United States presidential election bodes well for a new beginning in trade consultations and negotiations with China.
"This is expected to lead to improvements in US-China ties that will ripple positively through the rest of Asia."
Goh said several investment incentives and grants were put in place to attract foreign direct investments and accelerate local investments, particularly in strategic high-value-added sectors.
These include tax incentives for foreign companies to establish Malaysia as their regional hub for trade and operations, as well as grants for high technology and innovative sectors, and local supply chain improvements.
She said restrictions under the Conditional Movement Control Order (CMCO) were less stringent than before as it was still allowing economic activity to continue.
"The magnitude of the economic cost of the CMCO is estimated about RM17 billion to RM22 billion compared to RM30 billion to RM45 billion during the Enhanced Movement Control Order in March and April 2020, about 50 per cent less mainly because it was not a nationwide lockdown," she added.