THE Malaysian economy is expected to shrink 4.5% this year to a Gross Domestic Product (GDP) value of RM1.357 trillion, before rebounding between 6.5% and 7.5% next year.

The value of the economy is projected to increase to RM1.45 trillion next year, reflecting a rebound of 6.5-7.5%, according to the Economic Outlook 2021 report.

“The Malaysian economy experienced the full impact of the Covid-19 pandemic in the second quarter of 2020, with the real GDP contracting by 17.1%,” the report read.

“The contraction was mainly attributed to the imposition of the movement control order (MCO) to contain the outbreak. Though affecting all sectors in the economy, the move was necessary to flatten the Covid-19 curve and save lives,” it added.

The government also allocated RM305 billion through various stimulus packages to aid households and businesses to overcome the twin crisis of a pandemic and economic downturn.

The stimulus packages were expected to cushion the impact of the crisis while also stimulating the economy by boosting aggregate demand and sustaining employment.

According to the Finance Ministry’s internal estimates, the packages would add between 4% and 4.2% to GDP growth.

The packages would prevent 560,000 workers from losing their jobs, in turn adding 3.5 percentage points to the employment rate.

Growth is expected to improve gradually in the second half of the year, cushioning the impacts of the first half, with the economic sector re-opening in phases.

“Growth will continue to be supported by strong economic fundamentals and a well diversified economy,” the report said.

However, the favorable outlook hinges on two major factors – the successful containment of the pandemic and sustained recovery in external demand.

The report also noted that domestic demand was expected to decline by 3% in 2020 due to the slowdown in private and public spending.

The incentives under the stimulus packages and the recovery in business and consumer sentiments as well as the resumption of economic activities were expected to help turnaround domestic demand by 6.9% in 2021.

Temporary measures such as the loan moratorium, reduction in Employees Provident Fund contributions, low interest rates and discounts on electricity bills will help private consumption – which declined by 6% in the first half of the year – to rebound by 4.2% in the second half of 2020.

This is estimated to translate into a marginal decrease of 0.7% for 2020.

Private consumption is expected to grow by 7.1% in 2021 on the back of  higher disposable income driven by buoyant domestic economic activities, stronger export earnings, extension of tax reliefs on childcare and stronger export earnings among others.

Weighed down by the disruption of global supply due to the health crisis, exports are expected to decline by 5.2% this year before rebounding by 2.7% in 2021 on the back of the recovery in global trade and supply chains.

After a dismal show in 2020, the Malaysian economy is expected to firmly rebound in 2021, in line with a more synchronised global recovery.

Domestic demand is projected to record a steady growth on the back of improvements in labour market conditions, low inflation along with the revival of infrastructure projects.

“All sectors in the economy are expected to turn around, with services and manufacturing sectors continuing to spearhead growth,” it said.

The report added that the resurgence of Covid-19 cases and the time taken to contain the spread, both domestically and globally, continued to pose a downside risk to the growth outlook.

“Apart from that, geopolitical tension, volatility in financial and commodity markets as well as the prolonged tech and trade war may dampen the pace of recovery.

“Against this background, the government will continue to promote resilient and sustainable economic growth, while safeguarding the welfare of the people.

“Efforts will be enhanced to accelerate the shift to digitalisation, skilled workforce, quality FDIs (foreign direct investments) and strengthening environmental, social and governance principles to ensure sustainable and inclusive growth.” – November 6, 2020.