by FARA AISYAH / pic by TMR FILE

THE Malaysian GDP recorded a smaller contraction of 2.7% in the third quarter of 2020 (3Q20), compared with a 17.1% decline in the previous quarter, reflecting the reopening of the economy from Covid-19 containment measures and better external demand conditions.

Bank Negara Malaysia (BNM) governor Datuk Nor Shamsiah Mohd Yunus (picture) said improvements in growth were seen across most economic sectors, particularly in the manufacturing sector, which turned positive following strong electrical and electronics (E&E) production activity.

On the expenditure side, domestic demand contracted at a slower pace, while net exports rebounded.

On a quarter-on-quarter seasonally-adjusted basis, the economy turned around to register an expansion of 18.2%, against -16.5% in 2Q20.

“Going into 2021, the Malaysian economy is projected to recover and grow within the range of 6.5% to 7.5%. This projection is also inline with other multilateral institutions such as the International Monetary Fund and the World Bank.

“Growth in 2021 will be driven with rebound in global demand,” Nor Shamsiah said in a virtual press conference today.

She added that Malaysia’s key trading partners are projected to register better growth prospects in 2021.

As such, she said, the higher external demand will have a positive spillover onto export-oriented industries in the form of higher income and investment activities.

A turnaround in public and private sector expenditure is also expected amid various policy support, including Kita Prihatin, Bantuan Prihatin Rakyat, targeted wage subsidies and public projects.

Additionally, the continued financial measures and low interest rate environment are also expected to lend further support to economic activity.

Headline inflation is projected to average higher in 2021, primarily reflecting the higher projected global oil prices and the lapse in the impact from the tiered electricity tariff rebate in 2020.

Underlying inflation is expected to be subdued amid spare capacity in the economy.

The outlook for inflation trajectory would mainly depend on global oil and commodity price developments.

Although the recent resurgence of Covid-19 cases and targeted containment measures could affect the momentum of the recovery in the final quarter of the year, the impact is expected to be less severe compared to the containment measures during previous periods as most economic sectors have been allowed to continue to operate subject to compliance with standard operating procedures.