BNM governor: Economic recovery on track, but we’re not out of the woods yet

Malaysia is joining the growing number of nations that are transitioning towards endemicity, starting Friday.

With the world learning to live with Covid-19, restrictions will likely be eased over time, setting the stage for a rebound in the global economy.

Bank Negara Malaysia (BNM) governor Tan Sri Nor Shamsiah Yunus said for a small and open economy like Malaysia’s, this is a positive development – although it has to be tempered with a healthy dose of caution.

“The risk of resurgence still remains, and could make the path towards endemicity less straightforward than one might expect,” said Nor Shamsiah in her foreword in the Bank’s 2021 Economic and Monetary review.

The review was released earlier today.

“More broadly, we may not be out of the woods yet, even if we successfully come out of the pandemic. From the recent spate of floods in Malaysia, to geopolitical conflicts, the past two years have underscored how quickly the operating environment can change, with new risks and opportunities continuously emerging.”

She added it was important that Malaysia’s economy not only recovers, but does so in a strong and sustainable way.

“Being in a continued state of preparedness is thus, one of our top priorities in the year ahead. We are committed to ensuring the Bank’s policies and tools are ready to respond swiftly and effectively to downside risks that could derail Malaysia’s economic recovery.

“A key focus will be to manage potential inflationary pressures and ensure orderly financial market conditions, as policy settings are adjusted from unprecedented levels of monetary accommodation.”

Malaysia and the world’s economy suffered a massive contraction following the Covid-19 outbreak in 2020 that resulted in lockdowns worldwide. The global economy suffered another blow following Russia’s invasion of Ukraine last month.

Analysts had warned that the ringgit was also expected to be relatively weak against the US dollar throughout the year, partly due to the geopolitical conflict that would continue to be the source of market instability.

Nor Shamsiah added a strong financial system remained paramount to support a strong and durable recovery.

“Across these efforts, our public policy objectives will have a clear and common focus, which is the Bank’s mandates of promoting monetary, and
financial stability. Our policy focus will also continue to take a longer-term view – beyond immediate issues and challenges – to strengthen and preserve strong foundations for Malaysia’s economic prosperity and sustainability.”

BNM, in its review, said Malaysia’s gross domestic product (GDP) is expected to expand further between 5.3 and 6.3 per cent this year, up from the 3.1 per cent growth in 2021.

This, it said, would be underpinned by several factors, including the lifting of containment measures, the reopening of international borders, stronger private sector recovery, and improvements in labour market conditions.

Export-oriented sectors would continue to benefit from strong external demand, and expansion in domestic production capacity this year.

BNM added the service sector was expected to chart the highest growth, followed by construction, manufacturing, mining and quarrying, and agriculture.