KUALA LUMPUR (March 31): Bank Negara Malaysia (BNM) said today Malaysia's economic growth, as measured by gross domestic product (GDP), is projected at between 6% and 7.5% in 2021.
In 2020, Malaysia saw its GDP contract 5.6%.
According to BNM’s Economic and Monetary Review 2020 released today, the key factors supporting growth recovery are improving external demand amid a technology upcycle, less stringent containment measures and the Covid-19 vaccine roll-out, a gradual improvement in labour market conditions as well as a pickup in production from new and existing manufacturing and mining facilities.
The central bank also highlighted that a comprehensive and complementary policy support had been and will remain central in supporting the economy.
One of the key policy measures mentioned by BNM is fiscal injections to ease cash constraints, support labour market conditions and reinvigorate spending and economic activities, such as Bantuan Prihatin Nasional cash transfers to households, wage subsidy programmes as well as various tax incentives and relief.
Monetary stimulus to support domestic demand, reduce borrowing costs and facilitate continued credit intermediation was also put in place last year, including a 125-basis point (bps) reduction in the overnight policy rate (OPR) to 1.75%, statutory reserve requirement (SRR) ratio reduction of 100bps to 2%, and flexibility for banking institutions to use Malaysian Government Securities (MGS) and Malaysian Government Investment Issues (MGIIs) to meet SRR compliance.
Apart from these two measures, the country also implemented comprehensive financial assistance across all segments of the economy to ease cash flow constraints and support growth, including targeted repayment assistance, special funds and credit guarantees.
BNM also noted on other measures to support consumption and investment, enable firms to swiftly pivot and adapt to the new normal, and prepare the workforce for the future of jobs, such as EPF cash withdrawals, accelerated digitalisation initiatives, as well as promoting workforce upskilling and training.
Meanwhile, headline inflation is projected to average higher, between 2.5% and 4% in 2021, due mainly to cost-push factors, such as an expected increase in global oil and commodity prices, as well as the lapse of the effect of the tiered electricity tariff rebate introduced in April 2020.
“In terms of trajectory, headline inflation is anticipated to temporarily spike in the second quarter of the year, following a lower base from low domestic retail fuel prices during the corresponding period in 2020, before moderating by the second half of the year as this base effect dissipates,” said BNM.
Underlying inflation, as measured by core inflation, is, however, expected to remain subdued, averaging between 0.5% and 1.5% amid continued spare capacity in the economy.
Malaysia’s headline inflation was negative at -1.2% in 2020, primarily due to a decline in global oil prices, while underlying inflation remained subdued at 1.1% last year amid spare capacity in the economy and weaker labour market conditions.
Read more stories from the BNM Annual Report 2020 here.