Malaysia Sees Economy Rebounding to Pre-Covid Levels by Mid-2021

Malaysia’s central bank said it expects the economy to return to pre-Covid levels by the middle of this year, and pledged to keep monetary policy accommodative as the country charts a recovery from the pandemic.

Gross domestic product may expand 6% to 7.5% in 2021, Malaysia’s central bank said Wednesday in its annual Economic and Monetary Review. That’s a tad slower than its earlier projection of 6.5%-7.5% growth.

The revised outlook comes after virus cases peaked in January, forcing renewed curbs on travel that weighed on the recovery. The easing of those measures following a drop in the infection rate and the country’s vaccine rollout will help the economy rebound by the second quarter, according to the central bank.

“The economy is projected to return to 2019 pre-pandemic levels by mid-2021,” Bank Negara Malaysia Governor Nor Shamsiah Yunus said at a briefing. Growth will be driven by a strong recovery in exports, higher private consumption, faster investment activity and progress in major infrastructure projects such as the East Coast Rail Link, she said.

“We also expect the the positive growth momentum to be sustained in 2022, supported by further expansion in global growth,” Nor Shamsiah said. “As we reach herd immunity, pent-up demand, particularly in leisure and travel-related spending, will further lift the recovery.”

Accommodative Stance

Still, the unpredictable course of the health crisis means the country runs the risk of having to withstand the pandemic longer than expected, and that could weigh on the economic recovery, she said in the annual report.

“Given this uncertainty in the strength of economic recovery, the thrust of our monetary policy in 2021 will remain accommodative to support an entrenched and sustained recovery,” Nor Shamsiah said in the report.

Malaysia’s stock market overlooked the central bank’s recovery outlook, with the main equities index falling the most in four months. The drop was fueled mainly by deepening losses in glove makers’ shares and political and policy uncertainties, according to Chua Zhu Lian, investment director at Fortress Capital Asset Management Sdn.

Monetary policy assessments will remain data-driven, while operations will continue to be directed toward ensuring sufficient liquidity in the foreign exchange, bond and money markets, according to the annual report. The central bank held its benchmark interest rate at an all-time low earlier this month amid signs the economy is set to turn a corner.

Prime Minister Muhyiddin Yassin unveiled a 20 billion ringgit ($4.8 billion) package earlier this month that included discounts on power bills, tax breaks and cash aid to the poor.

That stimulus followed 15-billion ringgit worth of aid announced in January after the country declared a state of emergency to help curb the spread of Covid.

Malaysia’s average real GDP may have contracted 3% in January from a year ago, worse than in December, analysts at Maybank wrote in a note Tuesday. Real GDP may have shrunk further in February before improving in March, they added.

The economy contracted 5.6% in 2020, its worst performance since 1998 and below the government’s projection of -3.5% to -5.5%.

Other points from the Governor’s briefing:

  • Headline inflation may temporarily spike to 5% in the second quarter before easing in the second half of 2021; headline inflation to average 2.5%-4% this year
  • 2021 current account surplus seen at 2.5%-3.5% of GDP
  • Export growth to rebound to 8.2% this year, driven by U.S., China demand; gross imports to recover to 9.1%

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