BNM: Malaysia’s Economy Contracts 5.6% in 2020

Bank Negara has reported the country’s economy has contracted by 5.6 percent for 2020 as a whole. The economy registered a negative growth of 3.4 percent in Q4 largely due to the imposition of the Conditional Movement Control Order (CMCO) since mid-October in several states.

“The restrictions on mobility, especially on inter-district and inter-state travel, weighed on economic activity during the fourth quarter. Nevertheless, the continued improvement in external demand provided support to growth,” the central bank said in an issued statement.

With the exception of the manufacturing sector, all economic sectors have continued to record negative growth. On a quarter-on-quarter seasonally-adjusted basis, the economy registered a decline of 0.3 percent.

The contraction is second worst compared to the 7.4 percent contraction recorded during the Asian financial crisis in 1998.

However, the ringgit appreciated by 3.6 percent against the US dollar during Q4 2020, driven mainly by non-resident portfolio inflows as investors’ risk appetite continued to improve.

“Positive investor sentiment during the quarter was driven by news of successful vaccine trials and the rollout of vaccination programmes in major economies, as well as greater clarity on US policy direction following the outcome of the US presidential election.

Taken together, these factors formed the basis of a more positive investor outlook for the recovery of the global health crisis, which strengthened expectations for the eventual normalisation of economic activity,” Governor, Nor Shamsiah Yunus said.

The central bank has also reported that headline inflation recorded a decline to -1.5 percent, reflecting the larger decline in retail fuel prices. Core inflation moderated to 0.8 percent due to lower inflation for communication services and rental.

“While near-term growth in 2021 will be affected by the re-introduction of stricter containment measures, the impact, however, will be less severe than that experienced in 2020,” the bank said,

Bank Negara is also optimistic the growth trajectory is projected to improve from the second quarter onwards, supported by a turnaround in public and private sector expenditure and policy measures including PENJANA, KITA PRIHATIN, 2021 Budget and PERMAI, and higher production from existing and new facilities in the manufacturing and mining sectors. 

The central bank has also highlighted that headline inflation is projected to average higher, primarily due to higher global oil prices this year.

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