THE Malaysian economy contracted by 4.5% in 3Q 2021 (2Q 2021: +16.1%) as a result of strict containment measures particularly in July under Phase 1 of the National Recovery Plan (NRP).
Nevertheless, economic activity subsequently picked up as more states transitioned into Phase 2 with less restrictive containment measures, according to Bank Negara Malaysia (BNM).
On the supply side, all economic sectors registered a contraction with the construction sector contracted the most due to operating capacity limits.
On the expenditure side, domestic demand declined by 4.1% (2Q 2021: +12.4%), weighed down mainly by the contraction in private consumption and investment activities while continued increase in public sector consumption spending provided support to growth.
“Progressive lifting of containment measures and continued improvements in the labour market will be key to support the recovery going forward,” contended governor Datuk Nor Shamsiah Mohd Yunus in a media statement.
On a quarter-on-quarter (qoq) seasonally-adjusted basis, the economy registered a decline of 3.6% (2Q 2021: -1.9%).
Headline inflation moderated to 2.2% during the quarter (2Q 2021: 4.1%). This was due mainly to the dissipation of the base effect from fuel prices, and the implementation of the three-month electricity bill discounts. Core inflation remained at 0.7% during the quarter (2Q 2021: 0.7%).
Moving forward, the central bank expects domestic economy to be on track to expand by 3%-4% in 2021 with growth supported by an increase in economic activities as containment measures are progressively relaxed amid continued policy support.
The various relaxations of restrictions for fully vaccinated individuals including for interstate travel would also spur tourism-related activities. In addition, the strength in global demand will continue to support export growth.
“Malaysia’s growth trajectory is expected to improve given resumption of economic activities, further improvement in the labour market, continued policy support and expansion in external demand,” noted Nor Shamsiah.
“The progress and efficacy of vaccinations, compliance with standard operating procedures (SOPs) as well as the ability to effectively contain outbreaks from any new COVID-19 variants of concern (VOCs) will be key to the expected recovery.”
Year-to-date, headline inflation which has averaged 2.3% is projected to average between 2%-3% for 2021. Underlying inflation, as measured by core inflation, is expected to average below 1.0% for the year. In 2022, headline inflation is projected to remain moderate.
As economic activity normalises, core inflation is expected to edge upwards but remain benign given the continued spare capacity in the economy and slack in the labour market.
The outlook, however, continues to be subject to global commodity price developments and some risk from prolonged supply-related disruptions, added BNM. – Nov 12, 2021
