PETALING JAYA: The economy is poised for a rebound by the fourth quarter of this year, supported by higher vaccination rates, better control of the pandemic and improved political clarity.

       The third quarter is expected to remain difficult and will continue to weigh on the stock market, as a high level of Covid-19 cases affects the economy, according to Maybank Kim Eng equity research regional head Anand Pathmakanthan.

       “Also, once parliament convenes, we do expect to see some political temperatures rise. But by the fourth quarter, these issues should see a lot more clarity and end to uncertainty, which is what the market wants, ” he said yesterday following a webinar on the outlook of the second half of 2021.

       Once the lockdowns start to ease and the rate of vaccinations increases, there will be better certainty for investors to move the market in the right direction, according to Anand.

       “By the fourth quarter of this year, we should see a higher vaccination rate and registrations, as well as greater focus by investors on the positives rather than the negatives. “That also includes ample liquidity and a more settled global economic recovery.”

       Meanwhile, Maybank Kim Eng macro research regional co-head Suhaimi Ilias said the government would likely table an expansionary budget later this year.

       “I believe it will be an expansionary budget, in the sense that although we expect a fall in the budget deficit ratio to 6% in 2022 from 6.8% this year.

       “These numbers remain very high, relative to the mid-term fiscal projection average of 4.5% budget deficit ratio from 2021 to 2023. So from that perspective, it will be an expansionary budget.”

       Suhaimi expected the deficit value to be “close to RM100bil” for 2022.

       “That’s not much change from this year’s level of slightly above RM100bil, but it is larger than what it was historically.

       “In terms of goodies, they will have more to do with dealing with the scarring effect on the people as a result of the pandemic.

       “We can’t continue to expect loan moratoriums and Employees Provident Fund withdrawals because these are not recurring measures. There are limits.”

       Policies that would be announced would be those that would help uplift the segment of society that had been most affected by the pandemic, he said.

       Separately, the country’s gross domestic product (GDP) is expected to slow sharply in May and slump in June, mainly due to the tighter restrictions imposed by the nationwide lockdown.

       “We are close to the government’s target of hitting 300, 000 vaccine doses per day. We forecast that it would be possible to hit the fully-vaccinated 10% of the population target by the second week or end of this month.

       “Compared with our regional peers, Malaysia has also seen a pick-up in vaccination rate.”

       Last month, Maybank Kim Eng lowered its 2021 GDP forecast from 5.1% to 4.2%.

       Suhaimi said Bank Negara would likely maintain the overnight policy rate (OPR) at 1.75% until the end of the year.

       “In deciding the OPR, the central bank will look at several indicators, such the sovereign yield and credit spread. They have all basically eased and there has been no recent tightening in these indicators, so this will also influence Bank Negara’s decision.

       “One of the reasons the economy is growing below its potential is the soft job market conditions. Although the unemployment rate this year until April has been trending downwards, it remains elevated relative to immediate pre-Covid-19 levels and there are risks that the unemployment rate can go up due to the lockdown.”

       Suhaimi said the various stimulus packages announced by the government would help to boost the economy.

       “With the announcement of the National People’s Well-Being and Economic Recovery Package or Pemulih at the end of June, the total is RM530bil, including RM83bil in direct fiscal injection. We estimate that for every RM100bil stimulus, this can boost the GDP by between 1.1 and 1.2 percentage points.

       “Also, in terms of the eight stimulus packages thus far, as at the end of June, only RM200bil has been utilised, so there is a lot left to be expanded, ” he said.

       Separately, Anand said the first half of the year had been tough for the local stock market.

       “The FBM KLCI was the worst performing Asian benchmark in the first half of this year, which was quite a reversal from what we saw last year when it was a big outperformer.

       “This can be attributed to several factors, such as the multiple lockdowns and political uncertainty, as well as the slow vaccination rollout in the first half.”

       Nevertheless, Anand said corporate performance had been resilient in the past three quarters.

       “We see a lot of negative headlines about small and medium enterprises (SMEs) and micro-SMEs being affected by the lockdowns. But for the corporates, many of them have been quite immune in spite of the various lockdown pressures. Export-driven sectors have been doing well.

       “Also, the pace of non-performing loans formation has been far below expectations and that’s good news for the financial sector.”