Growth expectations for 2021-22 may be over-optimistic, says economist

KUALA LUMPUR (March 23): An economist has said that while global economic recovery prospects have brightened with Covid-19 vaccination roll-outs, current growth expectations for 2021 and 2022 may be over-optimistic, causing markets to overshoot.

Dr Yeah Kim Leng, professor of economics at Sunway University Business School, said he believes restoring potential growth may take longer than expected due to the lasting damage and loss of economic capital and productivity as a result of the pandemic and lockdowns.

“Global recovery prospects have certainly improved since the quick roll-outs of vaccines, but the growth forecast may be on the optimistic side as it assumes the countries are able to rebuild capacity and achieve maximum growth potential quickly,” Yeah said at the virtual Palm and Lauric Oils Price Outlook Conference today.

He said recovery remains uneven as the world emerges from a very unusual recession.

Likewise, the roll-outs of the Pfizer vaccine late last year and subsequent vaccines have boosted the equity markets, he said.

Noting that the sharp rise is reflective of investor sentiments and expectations, Yeah said the pace of increase has raised concerns over stock market bubbles and price misalignment.

“The performance gap risk, however, varies across countries. It will depend on whether the countries individually and collectively are able to contain the pandemic and achieve expected growth performance,” he said.

“Of course, the good news is that there are already countries closing in on (vaccinating 70%-80% of the population) to provide herd immunity,” he added.

On the flip side, Yeah noted that the vaccination supply is much lower than demand, due to vaccine hoarding, threat of new variants and emergence of third, fourth or subsequent waves of Covid-19 infection in a number of countries.

Nonetheless, the positive news for emerging markets is the resumption of portfolio flows since the sharp outflows in March last year, the economist said.

It is encouraging, he said, that more equities made up the bulk of the capital flows recently, which in turn suggests a return of confidence in emerging markets among international investors.

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2021-08-04T12:53:04+08:00