MALAYSIA’S economy is expected to expand between 6.5 per cent and 7.5 per cent in 2021 in tandem with the anticipated improvement in global trade, better consumer sentiment and business confidence, the Ministry of Finance (MoF) said.
This recovery comes after a projected contraction of 4.5 per cent for the 2020 Gross Domestic Product (GDP), as the country experienced the full brunt of the health pandemic, COVID-19, said the ministry.
In 2019, the economy grew at 4.3 per cent.
“The growth would also be supported by the pace of improvement that gathered momentum in the third quarter, especially in services and manufacturing sectors, following the resumption of economic activities,” the MoF said in its Economic Outlook 2021 report released here, today.
The treasury’s GDP forecast is within the range of Bank Negara Malaysia’s (BNM) 5.5 per cent and eight per cent for 2021. For 2020, BNM estimated it to be between -5.5 per cent and -3.5 per cent.
Both services and manufacturing sectors are expected to contribute seven per cent growth each to the country’s GDP next year from -3.7 per cent and -3 per cent projected for 2020.
Agriculture, mining and construction are forecast to register 4.7 per cent, 4.1 per cent and 13.9 per cent, respectively in 2021 (2020: -1.2 per cent, -7.8 per cent and -18.7 per cent).
The growth, it said, would also continue to be supported by strong economic fundamentals and a well-diversified economy.
However, the favourable outlook hinges on two major factors, namely the successful containment of COVID-19 and sustained recovery in external demand, it noted.
In 2021, inflation is expected to normalise at 2.5 per cent in line with better economic prospects and high crude oil prices.
On monetary and financial developments, the ministry said that the overnight policy rate was reduced successively by 125 basis points to a historic low of 1.75 per cent in 2020.
Similarly, the statutory reserve requirement was reduced by 100 basis points from three per cent to two per cent to ensure sufficient liquidity to support the domestic financial market.
“Monetary policy will continue to be supportive of the domestic economy, while the banking sector will remain robust and orderly, underpinned by ample liquidity and strong capital buffers.
“Likewise, the capital market is anticipated to be resilient, driven by well-developed infrastructure and instruments,” it said.
Nevertheless, the pace of global economic recovery, weak commodity prices and volatile global financial markets are among factors which may hamper the performance of the domestic financial market.
The global economy is projected to recover with a growth of 5.2 per cent, versus a negative growth of 4.4 per cent in 2020.
The immediate focus of the government in managing the crisis is on ensuring the safety of the people and addressing the needs of households and businesses adversely affected by the pandemic.
A new Act entitled the Temporary Measures for Government Financing Coronavirus Disease 2019 (COVID-19) 2020 was passed in Parliament on Sept 21, 2020 to finance stimulus packages, which enabled the government to implement them.
From the labour supply perspective, education and training institutions need to have more and closer collaboration with industries to determine the type of skills that suits companies’ requirement in the future, it said.
As Malaysia recovers from the impact of the pandemic, the economy must return to a more sustainable growth path.
“The focus will be on increasing foreign direct investments (FDI), enhancing productivity and re-instilling consumer confidence.
“As such the government will prioritise essential areas, such as improving the ease of doing business, enhancing the usage of technology and digitalisation across public and private sectors, as well as ensuring a stable labour market,” it said.
The ministry also said various initiatives will be formulated to provide a more conducive environment for businesses and FDI to thrive.
In steering the economy, it said the government, under the 2021 Budget, would also introduce measures to increase productivity by enhancing the adoption of technology across the board, including individuals, small and medium enterprises (SMEs), and corporates.
“As the backbone of the economy, the challenges faces by SMEs during the COVID-19 pandemic signifies the need for adoption and adaptation of new business approaches.
“The government will continue to provide the necessary support for SMEs to prosper in the new environment, including the potential for going global,” it added.