KUALA LUMPUR: HSBC believes the Malaysian economy has one of the brighter outlooks in the region and will emerge from a "double-dip" recession despite a lot of uncertainties.
The bank expects the country's gross domestic product (GDP) to rise 3.6 per cent in 2021, before accelerating to 5.6 per cent this year.
HSBC also believes that the undervalued ringgit will recover in 2022.
It said Malaysia has one of the highest vaccination rates in Asia that allowed the country to have a high degree of resilience.
While restrictions might be re-imposed, HSBC said the government would likely opt for highly targeted measures as opposed to lockdowns.
"Malaysia is currently attracting the highest share of FDI commitments in Asean, overtaking Vietnam. This bodes well for the future of manufacturing," it said.
HSBC said the US dollar and ringgit were hovering near the pair's year-to-date high due to various external challenges.
"HSBC Economics is optimistic about Malaysia's consumption prospects and exports outlook. Apart from Covid-19 developments, one other risk to our constructive ringgit view is that political uncertainty may weigh on sentiment and affect capital flows," it added.
Meanwhile, HSBC said Malaysia's manufacturing outlook remains impressively strong.
The lockdowns appear to have created a substantial backlog that the bank believes will drive Malaysia's export growth well into 2022.
"While export growth may nonetheless slow from 2021, this will likely occur at a far more gradual pace compared to other regional economies," it said.
As the labour market strengthens, HSBC said core inflation might gradually trend higher, approaching 2 per cent by the end of 2022, thus allowing Bank Negara Malaysia to initiate a gradual tightening process in the second half of 2022.
"We expect a total 100 basis point rate hikes over 2022 and 2023. Fiscal policy is expected to remain expansionary in 2022 with a budget deficit target of 6.0 per cent of GDP, compared to a targeted deficit of 6.5 per cent in 2021," it said.