The Malaysian economy expanded by 16.1% in the second quarter (1Q 2021: -0.5 percent )
Malaysia’s economy has grown by 16.1% in the 2nd quarter (1Q 2021: -0.5 percent ). Domestic demand growth and excellent export performance were key factors in the economy’s success. Strong growth also came from a lower starting point, thanks to a steep drop in jobs in the second quarter of 2020. Upon the re-establishment of powerful countrywide reinforcement initiatives under Section 1 of the Full Movement Control Order, economic activity rose up at the start of the second quarter, but then dropped marginally (FMCO). All sectors of the economy have registered for development, especially the manufacturing sector. In terms of expenditure, growth is driven by higher corporate spending and strong trading activity. On the basis of quarterly adjustments on a quarterly basis, the economy has recorded a decline of 2.0% (1Q 2021: 2.7%), measured by strong firm measures. “Whilst also mitigation measures have been implemented to development, increased flexibility and continuous policy support have mitigated the repercussions,” remarked Governor Datuk Nor Shamsiah.
Given the impact of fuel costs and the termination of the rebate effect on power rates, inflation jumped to 4.1 percent in the first quarter of 2021 (1Q 2021: 0.5 percent). Inflation was strong but consistent at 0.7 percent every quarter (1Q 2021: 0.7 percent ).
Exchange rate development
The ringgit is up 0.1% compared to the US dollar in the second half of 2021. This was due to the depreciation of the US dollar in the first half of the quarter due to the decline in US Treasury’s business yield which led investors to look up for creative assets. However, expectations for a quick acceleration of monetary policy suspension followed a June Federal Open Market Committee (FOMC) meeting, which resulted in a small increase in investor portfolios in respect of assets denominated in US dollars at the end of the quarter. As of July 1, the ringgit is down 1.7% against the US dollar (since August 9). This decline was accompanied by the performance of many regional currencies amid a broader strengthening of the U.S. dollar. Going forward, as uncertainty continues with the drive to revive the global and domestic economy, the ringgit is expected to continue to emerge in times of great volatility.
Financial conditions
Total funding in the private sector recorded annual growth of 4.4% 1 during the quarter (1Q 2021: 4.7%). Outstanding credit growth is estimated at 3.6% while the remaining bond2 growth has increased to 6.9%. Outstanding business loans have recorded annual growth of 1.3% amid small growth associated with low investment3. However, growth in operating cash balance3 increased on quarterly loans. At home, the demand for loans continues to come, especially in the purchase of housing.
While the prospect of near-growth growth has been affected by the recent resurgence of COVID-19 cases, the Malaysian economy remains on the verge of recovery.
The Malaysian economy remains on the verge of recovery by 2021. While the revitalization of COVID-19 cases and the re-establishment of national preventive measures are expected to weigh heavily on growth, the impact will be overcome by a number of factors. These include continuous grants for key economic sectors to operate, high flexibility in long-term operations, and automatic growth and digitalisation. Growth will also be supported by policy measures, which will provide funding, especially for affected households and businesses. Going forward, the growth trajectory will depend on the ability to prevent epidemics and the creation of health outcomes from the entire immunization program. This will allow the economic sector to open up gradually and provide some ideas for domestic and business families.
Therefore, in identifying the revised annual growth rate, the Bank considered the latest global economic developments, the implementation of the first phase of the National Rehabilitation Program (NRP), and the consideration of gradual to second, third and fourth phases of each state in terms of vaccination speed, and health system. Contrary to this trend, the Malaysian economy is expected to grow between 3.0% and 4.0% by 2021. New growth rates are lower compared to the previously announced growth rate, due in large part to the re-introduction of nationwide mitigation measures. However, the expected re-opening of the economy will support a gradual recovery in the fourth quarter of this year, with high global growth and ongoing policy support that provides further boost to economic growth. Recovery is expected to accelerate its progress towards 2022, supported by increased economic activity and a positive opening up to continued development of foreign demand.
Emphasizing the domestic vaccination program, Governor Datuk Nor Shamsiah explained that “Malaysia’s revitalization growth is expected to resume in the next half of the year 2021 and develop until 2022. The ongoing progress of the implementation of the national immunization program, which will reduce the complexity of the health care system and allow the mitigation of preventive measures. In addition, growth will also be driven by commodity production, manufacturing of demand, and continued investment in major infrastructure projects following the removal of restrictions. ”
In the near future, inflation is expected to be the same as the primary effect from fuel prices disappears. In 2021 as a whole, inflation is expected to be between 2.0% and 3.0%. Basic inflation, as measured by basic inflation, is expected to remain active, between 0.5% and 1.5% per annum, between the last remaining energy in the economy.