Malaysia: BNM sees economy expanding 6.0%-7.5% in 2021 – UOB

Pablo Piovano FXStreet

Senior Economist at UOB Group Julia Goh and Economist Loke Siew Ting evaluate the recent BNM growth projections.

Key Quotes

“Bank Negara Malaysia (BNM) projects the economy to rebound by 6.0% - 7.5% in 2021 (2020: -5.6%). Despite a slight downward adjustment from previous official forecasts of 6.5% - 7.5%, this remains an optimistic outlook and above our GDP forecasts of 5.0% for 2021. Positive growth will only be seen from 2Q21 given the tightening of containment measures earlier this year.”

“Key drivers of growth include external and domestic factors that will lift all economic sectors as the effects of the pandemic gradually recedes and the economy normalizes amid ongoing rollout of vaccines. Potential upside catalysts include stronger global growth, release of pent-up demand amid excess savings, ongoing targeted policy support, and effects of digitalisation to unlock higher demand. Downside risks include escalation in COVID-19 cases, slower roll-out or ineffective vaccines, commodity supply shocks, and greater financial volatility. BNM also announced further liberalisation of foreign exchange measures that are aimed to provided more flexibility to export-oriented industries in order to better support the economic recovery.”

“Headline inflation is projected to rise 2.5% - 4.0% in 2021 (2020: -1.2%) amid stable core inflation of 0.5% - 1.5% (2020: +1.1%). BNM stressed that higher headline inflation is due to supply-driven factors (i.e. rising global oil prices) which does not warrant any monetary response as underlying inflation remains subdued. BNM continues to see excess slack in the economy and unemployment rate above pre-pandemic levels at 4.0% - 5.0%. Hence, we expect the Overnight Policy Rate (OPR) to stay at 1.75% this year.”

Author

Pablo Piovano

FXStreet

Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.

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