Malaysia Q4 GDP rebounds but full year 2021 figure well below official forecast due to Covid-19

Malaysia's economy shrank 4.5 per cent in the third quarter of 2021. PHOTO: REUTERS

KUALA LUMPUR - Malaysia's gross domestic product rebounded to 3.6 per cent in the final quarter of last year, a clear signal that an economic recovery may be imminent this year if Covid-19 remains in check.

Chief Statistician Uzir Mahidin told a joint press conference with central bank governor Nor Shamsiah Yunus on Friday (Jan 11) that full-year growth for 2021 was 3.1 per cent, well below the initial official projection of up to 7.5 per cent.

The total economy and all sectors remained smaller than in 2019, except for manufacturing, which faced fewer closures during the pandemic, according to the Statistics Department. 

"Most importantly, the economy has reopened... however, there are also setbacks from the recent floods in December and the Omicron variant,"  Ms Shamsiah, the head of Bank Negara Malaysia (BNM), told the virtual briefing. 

Omicron is the less severe but highly transmissible variant of the coronavirus now sweeping across the world.

Malaysia's economy shrank 4.5 per cent in the third quarter of last year before a mass vaccination drive allowed restrictions to be lifted.

But floods, widely described as the worst in a century, caused billions of ringgit in damages nationwide, before the Omicron-fuelled surge in cases saw daily infections multiply fivefold to close to 20,000 after Chinese New Year.

But the authorities are confident that there will be no need for the lockdowns which crippled the economy earlier last year in the worst wave of the pandemic.

Health Minister Khairy Jamaluddin said on Jan 25 that "a normative consensus on how we all live with Covid-19 is necessary" as Malaysia implements "mitigation strategies to contain the pandemic while slowing down the impending Omicron wave without imposing harsh restrictions nor overwhelming our health care system".

"We can't do it anymore (total lockdown)... yes, we need to manage this pandemic effectively, we will do our best on the health matter but 'economic health' is also important," said International Trade and Industry Senior Minister Azmin Ali on Tuesday.

Senior Defence Minister Hishammuddin Hussein, who leads the "Quartet" group of ministries charged with making Covid-19 recommendations to the Cabinet, also insisted Tuesday that "we cannot budge from the planning for the subsequent (endemic) phase".

But a high number of Covid-19 cases could still curb consumer sentiment, which is also crucial for an economic rebound after two years of depressed private spending.

UOB Malaysia senior economist Julia Goh said: "We see Malaysia's economic recovery continuing this year, but the path will not be smooth as the pandemic is still far from over and external challenges have arisen."

Ms Shamsiah said on Friday that the central bank "will remain vigilant... in particular the trajectory of the pandemic and its impact on our healthcare capacity and the extent to which supply side disruptions continue to pose upward price pressures".

"Adverse developments on this front may weigh on growth," she added.

Private consumption - which has been the main driver of growth for the past decade and now makes up three-fifths of the economy - shrank 4.3 per cent in 2020 and only inched up 1.9 per cent last year despite the low base.

Inflation came in at 2.5 per cent last year, the second-highest level since 2015, with BNM saying "average headline inflation for 2022 is likely to remain moderate" while "core inflation is expected to edge upwards as economic activity normalises amid the environment of high input costs."

Higher prices would apply downward pressure on spending, putting the official 6.5 per cent growth target for this year at risk. 

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