Economy to rebound further but inflation to remain subdued
KUALA LUMPUR: The Malaysian economy is set for a further rebound in the fourth quarter of 2020 (4Q20) and in 2021 following a fine-tuning of Covid19 containment measures.
However, analysts said Malaysia’s inflation could remain subdued in 2021.
Asean governments have allowed most economic activities to resume, with the exception of the social and entertainment sectors.
Public Investment Bank Bhd said overall sentiment would also be boosted by the impending breakthrough in Covid-19 vaccine development, amid the encouraging announcement by Pfizer Inc recently.
“The global economy is expected to recover within one to two years amid a commitment by Pfizer to produce over a billion doses of Covid-19 vaccines in 2021 and even more in 2022.
“This will be a precursor for critical sectors to recover – namely aviation, tourism, transportation, culture and arts, to name but a few – which have been impacted severely by the Covid-19 crisis,” the investment bank said in a research note yesterday.
Public Investment Bank said due to the strong headwinds from Covid-19, which has been a global crisis for almost a year, most governments have opted to reduce the overnight policy rate (OPR) extensively, providing support for the economy that has been pummeled by the crisis.
“This was needed given the rising number of retrenchments following business closures and downsizing which pushed unemployment up markedly, a similar situation across Asean, if not the world,” it added.
The investment bank said the cut in OPR provided the stimulus for the economy, coupled with the fiscal measures rolled out by the government.
It said the OPR is projected to remain steady in the first half of 2021, noting that the direction for the OPR will, to a large extent, depend on the level of unemployment in the economy.
Policy normalisation could take place once unemployment levels have been brought down to a few notches above the 10year average of 3.2 per cent between 2009 and 2019.
Meanwhile, inflation is projected to remain subdued in 2021, driven by spare capacity in the economy, limited upside on global cost factors and tepid demand.
“Job creation could pick up pace only in the second half of 2021, a preamble for unemployment to only reduce slowly,” said Public Investment Bank.
The global economy is expected to recover within one to two years amid a commitment by Pfizer to produce over a billion doses of Covid-19 vaccines in 2021 and even more in 2022. Public Investment Bank Bhd