Bank Negara forecasts GDP growth of 6.5% to 7.5% but downside risks remain

KUALA LUMPUR (Nov 13): The country’s gross domestic product (GDP) is expected to recover in 2021 and to grow in the range of 6.5%-7.5%, said Bank Negara Malaysia (BNM) governor Datuk Nor Shamsiah Yunus. The projection is similar to the Ministry of Finance’s forecast and it is also in line with multilateral institutions such as the IMF and the World Bank.

Despite the smaller economic contraction of 2.7% in the third quarter, BNM keeps this year’s GDP contraction forecast at between 3.5% to 5.5%. 

“We recognise that the recent implementation of containment measures due to the resurgence of Covid-19 cases could somewhat affect our growth momentum in the final quarter of the year,” said Nor Shamsiah, stressing that the current CMCO is not the same as the previous CMCO.

“We expect growth to remain between our projected range of -3.5% to -5.5% for 2020, albeit closer to the lower end of the range as this forecast range has already incorporated the assumption of resurgence in Covid-19 cases,” said the governor at the virtual media briefing on the third quarter GDP statistics.

She highlighted that the outlook next year remains subject to downside risks, noting that the primary downside risk to global growth is the resurgence of Covid-19 cases, leading to the reintroduction of containment measures.

However, she stressed that the risk to growth from these resurgences is not expected to be as severe judging by the magnitude of the contraction observed in the second quarter.

“On the domestic front, this is also a risk to our growth prospects. The targeted containment measures could weigh on our economic activity in the affected states. However, the current targeted CMCO is not the same as the previous MCO. Almost all sectors are allowed to operate while households and businesses are able to adapt quickly to SOPs.

“Policy response is also gaining traction in supporting the economy. As such we expect the impact to be less severe than the second quarter. This is also corroborated by high frequency indicators. We suggest that consumer spending is less affected now compared to the second quarter,” said Nor Shamsiah.

BNM announced that the country’s GDP shrank by 2.7% in the third quarter of 2020 (3Q20) compared with a sharper contraction of 17.1% in 2Q20.

Private consumption recovered significantly, it registered a smaller drop of 2.1% in 3Q20 compared to 18.5% in 2Q20. “This was supported by a gradual recovery in broad income conditions amid resumption of economic activities. The performance was also lifted by the implementation of the stimulus measures,” said Chief Statistician of Malaysia Datuk Seri Dr Mohd Uzir Mahidin at the virtual briefing.

Public consumption expanded to 6.9%, supported by higher government spending on supply and services.

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