Bank Negara Malaysia (BNM)'s: Economic and Monetary Review 2020 - Turning the Corner for Next Take-off

31 March 2021

Overall, BNM expects a strong economic rebound (GDP growth estimate of 6.0-7.5%, equivalent to mid estimates of 7.0%) in 2021 from -5.6% in 2020, helped by a significantly low base due to the Movement Control Order in 2020, higher expansion of trade and manufacturing as well as strong recovery in services and construction sectors. SERC maintains its GDP growth estimates of 4.0% (base case) and 6.0% (upside) for 2021 amid continued economic scarring effects from the movement restrictions and restricted inter-state travel ban.
On private consumption growth estimate of 8.0% in 2021 (-4.3% in 2020), while the pent-up demand and consumption booster measures, such as EPF withdrawals, cash handout as well as the draw down of savings would help to shore up consumer spending, but a slow and moderate recovery in the labour market (BNM estimates unemployment rate at 4.6% in 2021 vs. 4.5% in 2020) would cap spending. In addition, the wearing off effect of consumption-fuelled catalysts would pull the brake on consumer spending towards end-year and in 2022.

BNM expects headline inflation to average between 2.5% and 4.0% in 2021 (SERC: 3.0%-4.0%) (-1.2% in 2020), mainly due to cost-push factors, such as the expected increase in global oil prices and the lapse in effect from the tiered electricity tariff rebate introduced last year. Inflation will spike to 5% in 2Q 2021 due to a low base effect last year.
BNM is expected to keep the overnight policy rate (OPR) at 1.75% in 2021 to ensure a durable economic recovery despite the short-term spike in cost-driven headline inflation. The Monetary Policy Committee (MPC) will be mindful to avoid a premature withdrawal of policy support.