Bank Negara’s Economic and Monetary Review has painted a rosy picture as it expects domestic economic growth to stage a strong rebound of 6%-7.5% in 2021, after succumbing to a recession of 5.6% in 2020. This marks the strongest expansion since the 2008-2009 Global Financial Crisis when the economy expanded by 7.4% in 2010.
All economic sectors are expected to return to the black, backed by strong external demand, especially riding on the technology upcycle and better commodity prices as well as revived manufacturing production of both domestic and export-oriented industries. The construction sector also will rebound as the pandemic-induced disruptions subside, and underpinned by ongoing public transportation and highway projects as well as the implementation of RM5bil small-scale projects.
But we caution that the challenging labour market conditions, with unemployment rate staying elevated at 4.6% in 2021 would likely weigh on consumer-facing sectors. In addition, the wearing-off effect of consumption-fuelled catalysts would pull the brake on consumer spending towards the year-end and in 2022.
In our view, Bank Negara has to keep a watchful eye on cost-push inflation for now, to anchor forward inflation expectations. This is to safeguard against the occurrence of unrelenting wage demand inflation when the workers ask for a wage rise to compensate for the rising cost of living. Post the Covid-19 world, there remains considerable challenges to our national socioeconomic development journey ahead. Domestic issues and challenges come from how the government and public institutions would ensure equitable growth and distribution as well as inclusiveness of development and income policies to all Malaysians. Pressures from external are getting more complex in the aspects of competitiveness, talent and skilled manpower, drawing high-quality investment.
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