Domestic demand to recover about 6.9% in 2021

DOMESTIC demand is expected to contract by 3% in 2020, with the private and public sectors’ spending declining by 3.2% and 2.1% respectively, said the Ministry of Finance (MoF).

The ministry said although domestic demand declined significantly by 7.7% in the first half of 2020 amid restricted movements to contain the COVID-19 pandemic, business and consumer confidence are expected to be restored in the second half of the year (H2 2020).

“That would be supported by the announcement of various stimulus packages and the gradual resumption of economic activities.

“Hence, domestic demand is anticipated to turn around to 1.5% during the period (H2 2020) and expand further by 6.9% in 2021,” the MoF said in its Economic Outlook 2021 report released today.

On private consumption, the ministry projected it to rebound by 4.2% in H2 this year and record a marginal decrease of 0.7% in 2020, supported by various stimulus packages aimed at providing support to households and businesses.

For 2021, it expected private consumption to increase by 7.1%, mainly lifted by higher disposable income arising from buoyant domestic economic activities, stronger export earnings, accommodative financial stance, extension of tax relief on childcare, and favourable stock market conditions.

The MoF anticipated private investment to contract by 11.7% in 2020 due to weak demand and tight liquidity, as businesses were closed down for weeks following the movement control order (MCO) and uncertainties in the financial markets in the first half of the year.

“Nonetheless, with various measures, including the establishment of funds to support digitalisation especially for the small and medium-sized enterprises (SMEs), private investment is expected to record a smaller decrease of 7.8% in H2 2020 and rebound by 6.7& in 2021,” it said.

On public investment, the ministry projected it to decline by 9.3% in 2020 due to lower capital outlays especially in H1 2020.

“However, public corporations are expected to continue investing in new and ongoing projects such as the development of oil and gas-related projects, upgrading of digitalisation-related activities and construction of energy plants.

“All these initiatives are expected to support public investment to expand by 16.9% 2021,” it said. As for public consumption, the ministry anticipated it to increase by 1.6% in 2020 and rose by 2% in 2021, with the government continuing to further improve public services delivery and optimising spending.

Meanwhile, the MoF expected the gross national income (GNI) in current prices to decline by 3.7% in 2020 following slower economic activities.

It also anticipated gross national savings (GNS) to fall by 11% to RM328.3 bil in 2020, and the savings-investment gap to record a surplus of RM48.5 bil this year.

“In 2021, the GNI is expected to rebound by 7.8% to RM1.53 tri, GNS to rebound by 2% to RM335 bil, and savings-investment gap to record a lower surplus of RM20.3 bil.

“However, the surplus would continue to provide ample liquidity to finance domestic economic activities and be mobilised for long-term productive investment,” it said. – Nov 6, 2020

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