In the second quarter, the Economy expanded by 16.1%. (1Q 2021: -0.5 percent ). Domestic demand growth and excellent export productivity were key factors in the economy’s success. Steady growth also came from a lower starting point, thanks to a steep drop in employment in the second quarter of 2020. Economic activity picked up at the beginning of the second quarter, but declined slightly after that, following the re-establishment of strong nationwide strengthening measures under Section 1 of the Full Movement Control Order (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. “While mitigation measures have been applied to growth, increased flexibility and continuous policy support have mitigated the impact,” stated Governor Datuk Nor Shamsiah.
Given the impact of cost of fuel 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 % ).
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 follow a June Federal Open Market Committee (FOMC) meeting, which resulted in a slowdown in investor portfolios in respect of assets denominated in US dollars at the end of the quarter. As of July 1, the ringgit has dropped by 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
Throughout the quarter, total funding in the private sector increased by 4.4 percent on an annual basis 1. (1Q 2021: 4.7 percent ). The outstanding credit growth is expected to be 3.6 percent, while bond2 growth is expected to be 6.9 percent. Outstanding business loans 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 increased automation and digitalization. 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 economic sectors to open up gradually and provide a boost to domestic and business sentiment.
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 continue to dominate, estimated at between 0.5% and 1.5% per annum, between the last remaining energy in the economy.
Malaysia’s gross domestic product (GDP) is expected to increase by 4.3 percent this year and 6.1 percent by 2022, according to the Organization for Economic Cooperation and Development (OECD).
Malaysia, like other nations throughout the world, continues to experience severe difficulties as a result of the epidemic, according to OECD Secretary-General Mathias Cormann, and Delta's extremely contagious diversity has made public health circumstances even more tough.
Cormann said the government has made great strides in its vaccination campaign and achieving higher vaccination rates will strengthen Malaysia’s resilience, especially in the event that new waves of new-type pollution occur around the world.
Malaysian Economic Outlook 2022
The OECD anticipates GDP growth of 4.3 % and 6.1 % in 2022, assuming the vaccine programme maintains on track, according to the research.
“This strong recovery is due to Malaysian economic policy response, which includes nine consecutive pockets to finance monetary policy, supporting monetary policy, and a strong banking system,” he said at an OECD Economic Survey in Malaysia 2021 press conference.
OECD country director of economics Alvaro Pereira said the OECD is very confident in its forecast now, not just a few months ago because it has seen very targeted restrictions in Malaysia.
“Exports to Malaysia are very strong, so we are optimistic going forward. We know there are a lot of accidents and unprecedented events, but the more information we get, the more we believe Malaysia is on the right track, ”Pereira said.
Malaysia’s third OECD economic study says the high unemployment rate behind the crisis is a challenge, as well as weaker product growth.
The study says that in the short term, speeding up the immunization program is important and support for the policy of individuals and firms should continue until the recovery is in place.
“Malaysia will then have to resume its pre-epidemic measures to strengthen performance by lowering regulatory and administrative burdens and speeding up the adoption of digital technology firms,” says the report.
“A fundraising plan will be required in the medium future to reduce state debt and pay for the mounting health and economic needs of the Malaysian older population,” he remarked.
The research also suggests that Malaysia’s digital transition be accelerated by enhancing digital infrastructure, enhancing Internet worker skills, and encouraging young businesses – particularly the elderly – to utilize new technology that can encourage new ones.
“Malaysia is a business-friendly nation that tends to entice a lot of FDI and is effectively linked into global price networks.
Additional measures to lower regulation and develop the digital sector, on the other hand, will be necessary to drive prosperity in the newly expanded globe and guarantee that Malaysia properly profits from today’s digital potential, according to Cormann.
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