Economy contracts 0.5 pct in 1Q, growth target remains

KUALA LUMPUR: The country’s economy recorded a contraction of 0.5 per cent in the first quarter of 2021, a sign of recovery from a decrease of 3.4 per cent in the preceding quarter with improvement seen in all economic sectors.

In the first quarter of 2020 at the onset of the pandemic, Malaysia recorded a gross domestic product (GDP) growth of 0.7 per cent.

All economic sectors recorded improvement during the quarter led by manufacturing, Bank Negara Malaysia Governor Datuk Nor Shamsiah Mohd Yunus told a virtual news conference in conjunction with the release of Malaysia’s 1Q21 GDP performance.

The manufacturing sector grew stronger at 6.6 per cent in the first quarter of 2021 compared to 3.0 per cent in the fourth quarter of 2020, while the services sector decreased 2.3 per cent during the quarter, but it was better then a decline of 4.8 per cent in the fourth quarter of 2020.

The agriculture sector grew marginally to 0.4 per cent, mining and quarrying improved to a negative 5.0 per cent and construction decreased 0.4 per cent.

Despite the the third round of the movement control order (MCO), Nor Shamsiah said Malaysia’s GDP growth is likely to remain in the range of 6.0 per cent to 7.5 per cent in 2021.

“MCO 3.0 will be similar with MCO2.0 with most economic sector remaining open.” Despite the recent re-imposition of containment measures, she said the impact on growth is expected to be less severe than that experienced in 2020, as almost all economic sectors are allowed to operate.

“Overall, the growth recovery will benefit from better global demand, increased public and private sector expenditure, as well as continued policy support. This will also be reflected in the recovery in labour market conditions, especially in the gradual improvement in hiring activity,” she said.

Nor Shamsiah noted that the higher production from existing and new manufacturing facilities, particularly in the electrical and electronics (E&E) and primaryrelated sub-sectors, as well as oil and gas facilities will provide a further impetus to growth.

The rollout of the domestic COVID-19 vaccine programme will also lift sentiments and contribute towards recovery in economic activity, she said.

Nevertheless, the pace of recovery will be uneven across economic sectors.

Going forward, she said Malaysia is well positioned to continue benefitting from stronger global economic and trade activities.

“While the growth outlook continues to be shaped by developments surrounding the pandemic, the implementation of containment measures which are mainly aimed at curbing social activities and allowing almost all economic sectors to operate, would minimise the impact on economic activity.”

The country’s current account of the balance of payments registered a surplus of RM12.3 billion or 3.3 per cent of GDP.

As for headline inflation, it turned positive in the first quarter of the year and is expected to average 2.5-4.0 per cent for the year.

“The headline inflation increased to 0.5 per cent in the 1Q21, mainly due to base effect from fuel prices and a lapse in impact from electricity tariff rebates.

“The higher inflation in 2021 was due to the cost-push factor of higher global oil prices, while core inflation to remain subdued,” Nor Shamsiah she said.

She noted that inflation may accelerate to 6.5-7.0 per cent in April-May before moderating below 5.0 per cent in June, while core inflation would stay subdued, averaging 0.5-1.5 per cent for 2021 amid continued spare capacity in the economy.

“The monetary policy in 2021 will remain accommodative to support the economic recovery, while ensuring prices pressures remain manageable.

“The bank also remains vigilant against a build-up of financial imbalances and given ongoing uncertainties surrounding pandemic, monetary policy going forward will continue to be determined by new data and information,” the BNM Governor added.

The central bank recently maintained its overnight policy rate at 1.75 per cent at the May monetary policy committee meeting.

MCO 3.0 will be similar with MCO2.0 with most economic sector remaining open.