Malaysian economy to contract 3.5% to 5.5% this year, rebound in 2021
KUALA LUMPUR: Bank Negara Malaysia lowered its forecast for the economy this year due to the impact of the Covid-19 pandemic and it expected negative growth of between 3.5% and 5.5% this year before rebounding 5.5% to 8% next year.
In a statement issued on Friday, it said the green shoots of economy recovery have already been seen in the current quarter after the severe contraction of 17.1% in the second quarter ended June 30. The 2Q contraction was the worst since the fourth quarter of 1998 during the Asian Financial Crisis.
“The Malaysian economy is expected to recover gradually in the second half of 2020 as the economy progressively re-opens and external demand improves, ” it said.
Bank Negara said economic activity has resumed since the economy began to reopen in early May 2020.
“Consequently, growth is expected to have troughed in the second quarter of 2020, with a gradual recovery in the second half. This outlook is underpinned by the rebound of key indicators such as wholesale and retail trade, industrial production, gross exports, and electricity generation, ” it said.
Bank Negara said this improvement in growth will also be supported by the recovery in global growth and continued domestic policy support.
“In particular, consumption and investment activity is projected to benefit from the wide-range of measures in the fiscal stimulus packages, continued financial measures and low interest environment.
“With the reopening of economic activities, a concurrent improvement in labour market conditions is expected.
“Overall, the Malaysian economy is therefore forecasted to grow within the range of -3.5% to -5.5% in 2020, before staging a rebound within a growth range of 5.5% to 8.0% in 2021, ” it said.
Bank Negara said average headline inflation in 2020 was likely to be negative, in line with the earlier projected range of -1.5% to 0.5%, primarily reflecting the substantially lower global oil prices.
It also pointed out the risks of a broad-based and persistent decline in prices are assessed to be limited as economic activity gradually resumes and demand conditions improve. Underlying inflation is expected to average within expectations for the year as a whole.
“For 2021, headline inflation is forecasted to average higher, between 1% to 3%, in line with the longer-term historical average, ” it said.
Bank Negara said this mainly reflects the expected recovery in global oil prices and improvement in domestic demand conditions.
However, the outlook will continue to be significantly affected by uncertainties surrounding global oil and commodity prices as well as the evolving Covid-19 developments.