This article first appeared in The Edge Malaysia Weekly on November 9, 2020 - November 15, 2020

MALAYSIA’s gross domestic product (GDP) is expected to grow between 6.5% and 7.5% in 2021, after a 4.5% contraction in 2020 owing to the Covid-19 pandemic.

The strong rebound in GDP growth will be driven by the anticipated improvement in global growth and international trade.

In addition, the impact of the stimulus packages implemented by the government is expected to have spillover effects and provide an additional boost to the economy in 2021, according to the Ministry of Finance’s (MoF) Economic Outlook 2021 report released last week.

However, the report pointed out that the upbeat outlook hinges on two major factors — the successful containment of the pandemic and sustained recovery in external demand.

The report noted that the country’s strong economic fundamentals and a well-diversified economy will help to support its economic growth.

The Malaysian economy had shrunk 8.3% in the first half of 2020 owing to the ­Covid-19 pandemic, with a decline of 17.1% in the second quarter.

With the speedy implementation of various stimulus packages, the economy is expected to contract at a slower pace in the second half of this year, the report said.

It highlighted that the month-to-month economic data signals green shoots of recovery, with a rebound seen in production and trade figures, a decline in the unemployment rate and a recovery in private consumption compared with the monthly data for the second quarter of 2020.

The government’s Covid-19 stimulus packages are expected to contribute more than four percentage points to GDP growth, according to the report, which noted that all four packages, comprising fiscal and non-fiscal measures, totalled RM305 billion or 21% of the nation’s GDP.

As the country recovers from the impact of Covid-19, the domestic economy will return to a more sustainable growth path.

“The focus will be on increasing foreign direct investment (FDI), enhancing productivity and re-instilling consumer confidence,” said MoF.

As such, the government will prioritise areas such as improving the ease of doing business, increasing the usage of technology and digitalisation across public and private sectors as well as ensuring a stable labour market.

Budget 2021 will also introduce measures to increase productivity by enhancing the adoption of technology across the board.

“The government will continue to provide the necessary support for small and medium enterprises to prosper in the new environment, including the potential for going global,” said MoF, adding that efforts will focus on the development of resilient SMEs.

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