Bank Negara sees CMCO impact less severe than previously

Bank Negara Governor Datuk Nor Shamsiah Mohd Yunus said: “The Malaysian economy is expected to improve further going into 2021 in tandem with better global demand and domestic policy support”.

KUALA LUMPUR: Bank Negara Malaysia expects the impact from the current conditional movement control order (CMCO) to be less severe compared to the containment measures imposed during previous periods and the country to stage a rebound next year.

Bank Negara Governor Datuk Nor Shamsiah Mohd Yunus said on Friday, most economic sectors have been allowed to continue to operate subject to compliance with standard operating procedures (SOPs).

Malaysia’s economy contracted at a smaller pace of 2.7% in the third quarter ended Sept 30, 2020 compared with the 17.1% plunge in the second quarter, underpinned by the recovery in the manufacturing sector. For 2020, the GDP is expected to contract between 3.5% and 5.5%.

“The Malaysian economy is expected to improve further going into 2021 in tandem with better global demand and domestic policy support,” she said in a statement.

“The recent resurgence of Covid-19 cases and targeted containment measures could affect the momentum of the recovery in the final quarter of the year,” she added.

However, she pointed most economic sectors have been allowed to continue to operate subject to compliance with the SOPs.

Nor Shamsiah said going into 2021, growth is expected to recover, benefitting from the improvement in global demand and a turnaround in public and private sector expenditure amid various policy support.

She said the policy support measures included government measures such as KITA PRIHATIN and the recently announced Budget 2021, specifically the Bantuan Prihatin Rakyat, targeted wage subsidies and public projects.

Additionally, the continued financial measures and low interest rate environment are also expected to lend further support economic activity.

As for headline inflation, she said it was projected to average higher in 2021, primarily reflecting the higher projected global oil prices and the lapse in the impact from the tiered electricity tariff rebate in 2020.

On the outlook for 2020, she said: "We took into account the possible resurgence of the virus and measures. Hence, the growth outlook for the year remains between -5.5 to -3.5 and the growth would most likely be on the lower end of our range.”

Nor Shamsiah liken the fight against the Covid-19 pandemic as a marathon as worries weighed on the risk of a resurgence.

"You are going to see containment measures not only in Malaysia but also elsewhere. But what we have seen is that countries and medical experts understand it much better with Standard Operating Procedures and Contact Tracing (put in place)," she said as Malaysia battles the third wave of COVID-19.

Bernama quoted her as saying during a senior editors briefing on Thursday that households and businesses are also able to adjust more quickly to recent mobility restrictions.

Accommodative monetary policy, continued assistance to vulnerable segments and cash transfer to affected households are gaining traction in supporting the economy, said the Governor.

"More important is that the growth trajectory that we have announced into 2021 remains on track. We are going to see a rebound in growth next year," she said.

BNM had earlier forecast a growth of 5.5% to 8% in 2021, while the Ministry of Finance (MoF), in its latest Economic Outlook, gauged the economy to grow between 6.5% and 7.5% next year.

She attributed MoF's better outlook on the export sector as the latest data were much better than anticipated.

The Department of Statistics Malaysia recently announced that Malaysia’s exports grew 13.6 per cent to RM88.9 billion in September from a year earlier, the largest year-on-year expansion in nearly two years.

It was Malaysia’s highest export value ever recorded for the month of September, it had said.

"The IMF (International Monetary Fund) itself has revised growth projection for this year and more importantly, the growth with our trading partners have also improved from what we have seen."

Last month, the IMF said global growth is projected at -4.4% for 2020, an upward revision of 0.8% compared with the projection in June as activity began to improve, especially in advanced economies.

Besides these, Nor Shamsiah said continuous progress of infrastructure projects would also be supportive of growth.

She cited the Westport Terminal extension worth RM10 billion, West Coast Highway costing RM5 billion and a RM9 billion mixed development project in Bukit Bintang as some of the projects that are yet to be taken into account.

"Some of the public investment projects are also still ongoing. Budget 2021 saw greater emphasis on JENDELA (the National Digital Network Initiative)," she said.

The government has allocated RM500mil to implement JENDELA to ensure connectivity of 430 schools throughout Malaysia, covering all states.

At the same time, the Malaysian Communications and Multimedia Commission (MCMC) will allocate RM7.4bil for years 2021 and 2022 to build and upgrade broadband services.

Besides these, the RM10bil KITA PRIHATIN stimulus package and targeted repayment assistance would also support public consumption.

On the supply side in terms of the manufacturing and mining sectors, there would be higher production from existing facilities, said Nor Shamsiah.

Going forward, she said the country needs to remain focused on the key issues that would bring the economy forward such as supply-side policies to enhance productive capacity of the economy and policies that would create more jobs and enhance people's income.

The biggest downside risk remains the resurgence and spread of the virus, while the upside risk is the availability of a vaccine and its effectiveness, she added.

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