Bank Negara Malaysia said less stringent Covid-19 containment measures, gradual improvement in labour market conditions, continued policy support for households and businesses, and improving external demand amid a technology upcycle will drive economic recovery.
“The Malaysian economy is to rebound in 2021, with the gross domestic product (GDP) achieving pre-Covid-19 levels by mid-2021,” BNM governor Nor Shamsiah Mohd Yunus said during a briefing for editors.
“And in our forecast, we have assumed herd immunity will only be achieved in the first quarter of 2022.
“We’ve also assumed that international borders will remain closed for this year and the movement control order will be highly targeted.”
The International Monetary Fund recently revised upwards its 2021 global growth forecast by 0.3 of a percentage point to 5.5%.
Malaysia’s economy shrank 3.4% in the fourth quarter of 2020 with the Covid-19 resurgence, bringing the full-year contraction to 5.6%.
Nor Shamsiah pointed out that the potential upsides to its GDP projections include possible pent-up demand amid the unprecedented high savings seen in the country.
“We also didn’t take into account that the government has accelerated the inoculation target where the government is now targeting that herd immunity will be achieved by the end of this year,” she said.
On the flipside, she said, the downside risks would be a broad-based lockdown to curb infection and a slow vaccination rate, stressing that overall “vaccination is the key”.
“The vaccine rollout is critical to this economic recovery as the current crisis is a health crisis,” she said.
She said domestic private consumption will anchor growth in 2021 due to less stringent movement restrictions and gradual improvement in sentiments amid the vaccine rollout, and continued income growth on the back of improving economic activity.
Similarly, investment activity will rebound, driven by better demand conditions and government initiatives which triggered a recovery in capital spending in both private and public sectors.
The activity will also be supported by a gradual improvement in foreign and domestic investment on the back of better external demand and tech upcycle.
On the labour market, Nor Shamsiah said the central bank expected recovery in employment after witnessing encouraging signs of continued hiring activity.
‘Cash was king in 2020’
BNM, in its Annual Report 2020 released today, said despite movement restrictions and rapid acceleration in e-commerce and online spending in 2020, cash remained the most prevalent medium of payment.
It saw an annual growth of 14.3%, the highest increase in currency in circulation (CIC) in the last 10 years.
“At the end of 2020, there was RM130.4 billion worth of banknotes and coins in circulation, with an annual growth rate of 14.3%. This was the highest increase in CIC in the last 10 years,” the report said.
In 2019, the CIC was 7.3%, and the average was 8.9% in the last 10 years.
“The significant increase in demand, which can also be observed in other countries, was due to members of the public and small businesses engaging in precautionary behaviour, as they sought to hold more cash during the Covid-19 pandemic,” it said.
BNM said with the public keeping more cash in hand, it received 23% fewer deposits from financial institutions during the year.
In maintaining the currency’s high quality, it processed 2.3 billion (2019: 2.9 billion) banknotes in 2020 and shredded 23.3% (2019: 20%) of these banknotes that no longer met the quality standards.
At the end of 2020, it said, Malaysia’s counterfeiting rate was less than one piece per million (ppm) of banknotes (2019: one ppm), well below that of other benchmarked countries.
No plans yet for digital currency
BNM said it does not have any immediate plans to issue a central bank digital currency.
It said the financial system in Malaysia continues to support the functioning of the economy while meeting the needs of individuals and businesses.
“To this end, the existing monetary and financial policy tools have remained effective in safeguarding monetary and financial stability.
“Moreover, domestic payment systems, including the real-time retail payments platform, also continue to operate safely and efficiently to support the needs of the economy and allow real-time digital payments,” it added.