KUALA LUMPUR,Nov 6: Malaysia’s economy is expected to expand between 6.5% and 7.5% in 2021 in tandem with the anticipated improvement in global trade, better consumer sentiment and business confidence, the Ministry of Finance (MoF) said today.

This recovery comes after a projected contraction of 4.5% for the 2020 gross domestic product (GDP), as the country experienced the full brunt of the Covid-19 pandemic, said the ministry.

In 2019, the economy grew by 4.3%.

“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.

The treasury’s GDP forecast is within the range of Bank Negara Malaysia’s (BNM) 5.5% and 8% for 2021. For 2020, BNM estimated it to be between -5.5% and -3.5%.

Both services and manufacturing sectors are expected to contribute 7% growth each to the country’s GDP next year from -3.7% and -3% projected respectively for 2020.

Agriculture, mining and construction are forecast to register 4.7%, 4.1% and 13.9% respectively in 2021 (2020: -1.2%, -7.8% and -18.7%).

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 2.55% in line with better economic prospects and high crude oil prices.

On monetary and financial developments, the ministry noted that the overnight policy rate was reduced successively by 125 basis points (bps) to a historic low of 1.75% in 2020.

Similarly, the statutory reserve requirement was reduced by 100 bps from 3% to 2% 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 5.25%, versus a negative growth of 4.4% 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, to finance stimulus packages, enabling the government to implement them.

From the labour supply perspective, education and training institutions needed to have more and closer collaboration with industries to determine the type of skills that would suit 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 reinstilling 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 would 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-sized enterprises (SMEs), and corporations.

“As the backbone of the economy, the challenges faced 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.

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