KUALA LUMPUR: The Malaysian economy is set to recover in 2021 with growth projected at 6.5 per cent, driven by a strong recovery in manufacturing and construction, the International Monetary Fund (IMF) said today.
According to its Article IV consultation with Malaysia, the IMF said the recovery was expected to be uneven across sectors, resting on an improvement in both domestic and external demand.
Inflation will recover to two per cent and the current account surplus is on course to decline as demand for pandemic-related products starts receding and the rebound in domestic demand raises imports.
“In Malaysia, a strong fiscal, monetary and financial policy response has helped cushion the economic shock from the pandemic and ensure financial stability.
“The current account registered a surplus due to both increased pandemic-related external demand for health-related and electronic equipment and weak imports,” it said.
ThevIMF added that an intensification of the pandemic and materialisation of other risks could derail the recovery.
“A protracted spread of the virus could prompt the authorities to tighten health and physical distancing measures, with negative impact on growth.”
On the downside, the IMF said Malaysia’s open economy was vulnerable to escalating trade tensions and weaker-than-expected growth in trading partners.
“Domestic policy uncertainty could also dampen business confidence and investment, with negative impact on economy activity.
“On the upside, faster-than expected deployment of Covid-19 vaccines could raise growth,” it said.
The IMF said its executive board welcomed the Malaysian authorities’ well-coordinated policy response to the pandemic which, together with sizable buffers, has helped mitigate the macro-financial impact of the crisis.
“(The) directors observed that a strong recovery in 2021 remains subject to considerable downside risks and noted that macroeconomic policies should remain supportive until the recovery is fully entrenched,” it said.
The fund also supported the accommodative monetary policy stance and welcomed Malaysia’s continued efforts to deepen domestic foreign exchange markets through expanded availability of hedging instruments and other initiatives.
“They encouraged the authorities to continue allowing the exchange rate to cushion shocks to the economy.
“Some directors emphasised that existing capital flow measures should be phased out over time with due regard to market conditions,” it said.
Meanwhile, the IMF agreed that the country’s banking system remained sound.
“Nevertheless, (the directors) encouraged the supervisory authorities to remain alert to deterioration in banks’ asset quality in the near term and called for close monitoring of the high level of household debt as loan moratoria are phased out.
“(The) directors welcomed the authorities’ enhancements to the debt resolution framework and their focus on inclusion and climate change in the context of financial-structural reforms,” it said.
The Malaysian economy is set to recover in 2021, with growth projected at 6.5 per cent, driven by a strong recovery in manufacturing and construction, the International Monetary Fund (IMF) said today.
According to its Article IV consultation with Malaysia, IMF said the recovery is expected to be uneven across sectors, resting on an improvement in both domestic and external demand. Inflation would recover to two per cent and the current account surplus is on course to decline as demand for pandemic-related products starts receding and the rebound in domestic demand raises imports.
“In Malaysia, a strong fiscal, monetary and financial policy response has helped cushion the economic shock from the pandemic and ensure financial stability.
“The current account registered a surplus due to both increased pandemic-related external demand for health-related and electronic equipment and weak imports,” it said.
IMF added that an intensification of the pandemic and materialisation of other risks could derail the recovery.
“A protracted spread of the virus could prompt the authorities to tighten health and physical distancing measures, with negative impact on growth.
“Also on the downside, Malaysia’s open economy is vulnerable to escalating trade tensions and weaker-than-expected growth in trading partners.
“Domestic policy uncertainty could also dampen business confidence and investment, with negative impact on economy activity.
“On the upside, faster-than expected deployment of Covid-19 vaccines could raise growth,” it said.
IMF said its executive board welcomed the Malaysian authorities’ well-coordinated policy response to the pandemic which, together with sizable buffers, has helped mitigate the macro-financial impact of the crisis.
“Directors observed that a strong recovery in 2021 remains subject to considerable downside risks and noted that macroeconomic policies should remain supportive until the recovery is fully entrenched,” it said.
IMF said besides that, it supported the accommodative monetary policy stance and welcomed Malaysia’s continued efforts to deepen domestic foreign exchange markets through expanded availability of hedging instruments and other initiatives.
“They encouraged the authorities to continue allowing the exchange rate to cushion shocks to the economy.
“Some Directors emphasised that existing capital flow measures should be phased out over time with due regard to market conditions,” it said.
Meanwhile, IMF said it agreed that the banking system remains sound.
“Nevertheless, they encouraged the supervisory authorities to remain alert to deterioration in banks’ asset quality in the near term and called for close monitoring of the high level of household debt as loan moratoria are phased out.
“Directors welcomed the authorities’ enhancements to the debt resolution framework and their focus on inclusion and climate change in the context of financial-structural reforms,” it said.-NST