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Overview of Bank Negara Malaysia’s Economic and Monetary Review 2020

Overview prepared by Benedict Weerasena (Economist, Bait Al Amanah)

Bank Negara Malaysia released its annual Economic and Monetary Review 2020 today which focuses on the Bank’s economic assessments and forecasts. In 2020, the Malaysian economy recorded a GDP growth of -5.6%, the lowest since 1998 (-7.4%), due to several reasons:

  1. Broad-based weaknesses in exports production and domestic demand,

  2. Stringent domestic containment measures and lingering uncertainties due to the pandemic,

  3. Sharp contraction in global growth and trade activity.

However, a series of comprehensive and complementary policy responses to the crisis has been instrumental in supporting the economy and cushioning the impact of the economic contraction. Specifically, a series of stimulus packages worth RM305 billion (20% of Malaysia’s GDP) was unveiled which included cash transfers, tax incentives and wage subsidies, coupled with financial measures, including a six-month automatic loan moratorium for households and small- and medium-sized enterprises (SMEs) as well as the establishment of various financing facilities for SMEs as shown below.

Source: Bank Negara Malaysia Economic and Monetary Review 2020

In 2021, Malaysia’s GDP is projected to recover, rebounding to between 6.0% and 7.5%. However, the recovery, is expected to be uneven and will be shaped by the course of the COVID-19 pandemic and vaccine rollout, the extent of external spill overs, the degree of improvement in labour market conditions and sector-specific developments among others. On the other hand, the factors supporting growth include:

  1. Continuation of public infrastructure and other construction projects,

  2. Stronger private consumption due to less stringent movement restrictions and improving consumer sentiment,

  3. Continual digital adoption and increase in online shopping,

  4. Rebound in investment activity,

  5. Recovery in global demand benefitting Malaysia’s exports, domestic production and employment,

  6. Improvement in E&E production and exports due to global tech upcycle,

  7. Higher manufacturing and commodity production.

Source: Bank Negara Malaysia Annual Report 2020 Publication Slides

However, in this unpredictable environment, several risks are present including upside risks such as faster-than-expected rollout of vaccines, higher than expected global growth, stronger-than-expected impact from policy support, and the realisation of pent-up demand following the lifting of containment measures. However, Malaysia’s growth projection is tilted towards greater downside risks. These downside risks include:

  1. the possible escalation in COVID-19 cases leading to further rounds of targeted containment measures,

  2. slower-than-expected rollout or ineffectiveness of vaccines,

  3. greater financial market volatility due to heightened global and domestic economic uncertainty

  4. commodity supply shocks.

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