Malaysia Economic Forecast 2021

Malaysia Economic Forecast 2021

The Malaysia Economic Forecast 2021 summarizes key economic and social developments over the past year. It also presents findings on the evolution of policy reforms, external/global conditions, and financial-market dynamics from world-recognized financial institutions and multinational professional services authorities, assessing their implications for the country’s medium-term economic outlook.

Malaysia’s economy continues to reel from the scarring effects of the response to the COVID-19 global pandemic. Bank Negara Malaysia, the country’s central bank, lowered its 2021 economic forecast from the 6.0% to 7.5% projected growth in Q1 to 3.0% and 4.0%. Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said last July that GDP estimate for 2021 will face adjustments despite potential containment of the current new infection surge. Even the World Bank Group had to revise Malaysia’s economic growth projection from 6.0% to 4.5%, citing the slower-than-expected vaccination program and resurgence of COVID-19 cases.

“We’re in the midst of revising it (GDP estimate 2021) to around 4.0% which is currently at 6%-7.5%,” Tengku Zafrul said. He believed that the government needs to fund additional stimulus packages and raise the debt ceiling from 60% to 65%. “Our focus today is for the economy to open safely.”

“The lockdown will continue to impact Malaysia’s GDP growth, besides ineffective containment of the pandemic as well as slower vaccinate rate and political uncertainty,” World Bank senior economist Shakira Teh Sharifuddin explained.

“Markets are priced up for a deteriorating economic outlook as the Covid wave shows no signs of subsiding,” said Prakash Sakpal, senior economist at ING Groep NV in Singapore, who believed that the elevated political uncertainty is also making matters worse for the markets.

“Malaysia’s growth recovery is expected to broadly resume in the later part of the second half of 2021 and improve going into 2022,” said BNM Governor Nor Shamsiah Mohd Yunus.

However, an extension of lockdown measures will weaken domestic demand again, according to the Asian Development Bank. “Business conditions for manufacturers deteriorated sharply in June under stricter containment measures. “Greater downside risks are likely as rising infections show no sign of abating,” it said in the report.

Continued movement restrictions will lead to slower wage growth and decreased private consumption. Businesses, particularly micro, small, and medium enterprises (MSMEs) will continue to face revenue losses, with 64% already filing reports during the 2nd Conditional Movement Control Order (CMCO) in Malaysia. “Important social protection measures are needed to help vulnerable Malaysians survive the current economic storm and thrive in a new post-pandemic reality. Protecting livelihoods is important so that those who have lost their jobs and businesses are able to get back on their feet and contribute to Malaysia’s economic recovery,” said Firas Raad, World Bank Group Representative to Malaysia and Country Manager.

Weathering the Surge: Malaysia’s Near-Term and Long-Term Policy Measures

  1. Saving Malaysian lives and their livelihoods
  • Strengthen smart containment procedures prior to implementation of less stringent movement control protocols
  • Accelerate vaccine rollout pacing for providing faster and more adequate population protection
  • Provide additional targeted financial aid and economic assistance to vulnerable households and businesses
  1. Immediate relief packages to firms to increase business efficiency and productivity
  • Provide clear eligibility rules for applications on government-supported financial programs
  • Extend conditional wage subsidies to limit further layoffs among the elderly, blue-collar earners, and part-time workers
  • Expedite approvals and disbursements of loans made by individuals and businesses
  • Recalibrate digital capability and green programs to boost economic activity among MSMEs
  • Develop more efficient, more inclusive, and digital-supported loan application processes, credit decisioning practices, and other financial services
  1. Implement deep structural reforms to achieve higher rates of more sustainable productivity growth
  • Companies need to embrace innovation or the adoption of better management techniques and new technologies to enable workers to get involved with higher productivity activities
  • Take advantage of digital tools not only for sales and marketing functions but also for expanding opportunities for remote work arrangements, introducing new products, and increasing access to larger markets
  • Productivity gains can be realized through reforms to the ownership structure of companies, increase in competition intensity, and continuous investments to high quality education and training

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