KUALA LUMPUR, March 31 — The Malaysian economy is projected to expand between 6.0 per cent and 7.5 per cent in 2021 compared with a contraction of 5.6 per cent in 2020, supported by domestic factors such as consumption and a brighter external environment fuelled by vaccine rollout.

Besides inoculation, less stringent containment measures and Covid-19, gradual improvement in labour market conditions, continued policy support for household and businesses, as well as improving external demand amid technology upcycle will drive economic recovery.

"Malaysian economy to rebound in 2021, with the gross domestic product (GDP) achieving pre-Covid-19 levels by mid-2021,” Bank Negara Malaysia (BNM) Governor Datuk Nor Shamsiah Mohd Yunus told an editor briefing session yesterday.

"And in our forecast, we assumed herd immunity will only be achieved in the first quarter of 2022.

"We assumed that the international borders will remain closed for this year and the movement control order will be highly targetted,” she said.

The International Monetary Fund has recently revised upwards its 2021 global growth forecast by 0.3 percentage point to 5.5 per cent.

Malaysia’s economy shrank 3.4 per cent in the fourth quarter of 2020 with the Covid-19 resurgence, bringing the full-year contraction to 5.6 per cent.

Nor Shamsiah pointed out that the potential upsides to its GDP projections include possible pent-up demand amid the historical high savings seen in the country.

"We also didn’t take into account that the government has accelerated the inoculation target where the government is now targetting the herd immunity to be achieved by end of this year,” she said.

On the flipside, the downside risks would be a broad-based lockdown to curb infection and the slower vaccination than anticipated, she said, stressing that overall "the vaccination is key.”

"The vaccine rollout is critical to this economic recovery as the current crisis is a health crisis,” she said.

Therefore, Nor Shamsiah said Malaysia’s phased vaccines rollout started at the end-February will provide some lift to growth, as it supports recovery in employment and income by improving consumer sentiment and facilitating a gradual normalisation in economic activity.

Correspondingly, the global economy is set to rebound this year and to grow by 5.5 per cent after a large contraction in economic and trade activity in 2020.

"Global economic activity will be driven by vaccine rollout and continued significant policy support comprising large fiscal and monetary stimulus to cushion the pandemic impact on growth.

"Global health crisis triggered a large economic downturn in 2020 which caused weaker demand and production disruptions amid widespread containment measures,” she said.

In another development, Nor Shamsiah said domestic private consumption will anchor growth in 2021 due to less stringent movement restrictions and gradual improvement in sentiments amid vaccine rollout, as well as continued income growth on the back of improving economic activity.

Similarly, investment activity would rebound, driven by better demand conditions and government initiatives which triggered a recovery in capital spending in both private and public sectors.

She said the activity will also be supported by a gradual improvement in foreign and domestic investment on the back of better external demand and tech upcycle.

The realisation of approved manufacturing investment amounting to RM91.3 billion in 2020 versus RM82.7 billion in 2019 and continuation of transport infrastructure projects, namely the East Coast Rail Link, Mass Rapid Transit Sungai Buloh-Serdang-Putrajaya Line and Light Rail Transit Line 3.

Others include enhancements in digital infrastructure and efforts to attract quality investment and improve ease of doing business such as extension relocation incentives, establishment of one-stop-centre to ease entry of business travellers and Project Acceleration and Coordination Unit.

Nor Shamsiah said financial systems remains resilient and well-placed to support financial intermediation, while financial institutions continued to maintain strong capital buffers with healthy liquidity to support intermediation activities.

On the labour market, she said the central bank expects recovery in employment and unemployment after witnessing encouraging signs of continued hiring activity. — Bernama