Malaysia lowers 2021 growth forecast as pandemic delays recovery

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KUALA LUMPUR – Malaysia’s central bank expects the economy to grow at a slower pace than initially forecast this year, and pledged to keep monetary policy accommodative as the country charts a recovery from the Covid-19 pandemic.

Gross domestic product (GDP) may expand as much as 6 per cent to 7.5 per cent this year, Malaysia’s central bank said on Wednesday (March 31) in its annual Economic and Monetary Review. That compares to its earlier projection of 6.5 per cent to 7.5 per cent growth.

The weaker outlook comes after virus cases peaked in January, forcing renewed restrictions on travel that weighed on the recovery. The government has since eased those measures as the infection rate slowed and the country’s vaccine roll-out is set to enter its second phase next month. The tally of new Covid-19 cases on Monday was the smallest since early December.

“Even as the economy recovers from the pandemic, we are not completely out of the woods,” Bank Negara Malaysia governor Nor Shamsiah Yunus said in the annual report. “Given this uncertainty in the strength of economic recovery, the thrust of our monetary policy in 2021 will remain accommodative to support an entrenched and sustained recovery.”

Monetary policy assessments will remain data-driven, while operations will continue to be directed towards ensuring sufficient liquidity in the foreign exchange, bond and money , according to the annual report. The central bank held its benchmark interest rate at an all-time low earlier this month amid signs the economy is set to turn a corner.

Prime Minister Muhyiddin Yassin unveiled a RM20 billion (S$6.5 billion) package earlier this month that included discounts on power bills, tax breaks, and cash aid to the poor.

That stimulus followed RM15 billion worth of aid announced in January after the country declared a state of emergency to help curb the spread of Covid-19.

Malaysia’s average GDP may have contracted 3 per cent in January from a year ago, worse than in December, analysts at Maybank wrote in a note on Tuesday. Real GDP may have shrunk further in February before improving in March, they added.

The economy contracted 5.6 per cent in 2020, its worst performance since 1998 and below the government’s projection of minus 3.5 per cent to minus 5.5 per cent.

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