Asia week ahead: A big policy week in Malaysia

The usual start-of-the-month releases, especially purchasing manager indexes for October will shed some light on the direction Asian economies are headed in the 4Q20.

Adding to this will be Korea’s export growth in October - the first hard data of the month from the region. While these indicators shape up expectations of economic recovery, the resurgent Covid-19 infections around the world may well mean we’re in for a prolonged economic slump. Probably this is what underlies the consensus about Korea's exports returning to negative growth in October from a one-off bounce in September.

Lots of inflation figures due from around the region won’t budge the markets, but they will still be important for central bank policymakers. Central banks of Australia and Malaysia are reviewing their monetary policies next week. Our Australia watcher, Rob Carnell, sees a decent chance of further RBA easing, though more likely via the quantitative easing route rather than a rate cut. More so given weakening pressure on AUD in the ongoing risk-off.

Indonesia is the next one in Asia to report 3Q GDP data. The consensus of a slightly smaller GDP fall than -5.3% YoY in 2Q looks likely given continued pounding of the economy. Hence our house view of steeper GDP fall by 5.6% YoY. And, rising jobless rates will continue to depress consumer spending in Hong Kong and Singapore as their retail sales figures should reveal.

Malaysia's central bank meets on Tuesday, 3 November, which will be followed by the latest government budget for 2021 on Friday. We expect an expansionary macro policy.

The central bank is widely expected to leave policy on hold, leaving the overnight policy rate at 1.75%. However, we won't entirely rule out a rate cut in view of the latest second wave developments. Unlike most Asian peers, the BNM has sufficient easing space from negative inflation, while there is limited leeway for fiscal policy after a record stimulus unleashed earlier this year.

However, the upcoming budget has become a contentious political issue in view of a slim coalition majority. Amidst the ongoing power struggle, fears that the budget bill might not get through the parliament and this causes yet another political crisis are prevalent.

Malaysia’s King has urged lawmakers to refrain from politicising the issue and support the budget at such a critical juncture. We aren’t ruling out any political fireworks just yet.