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Malaysia’s Economic Recovery Remains Elusive without Clear Plans to Address Downside Risks

Media Statement by Research for Social Advancement (REFSA) Economics Team on 30 April 2021

On April 28, the Asian Development Bank released its GDP projections for 2021, with Malaysia forecast to grow by 6%. This comes just a month after the World Bank downgraded its own projections for Malaysian GDP growth from 6.7% to 6% while the IMF’s estimate stands at 6.5%. 

These figures reinforce REFSA’s concern that Bank Negara Malaysia’s (BNM’s) 2021 growth forecast of 6-7.5% is too optimistic, with the multilateral organisations’ estimates lying at or near the lower bound of the range. These revised forecasts also underline the necessity of an informed and robust debate around GDP growth projections and the associated policy measures.

In the most recent episode of the REFSA Reflections podcast, released today, YB Dr. Ong Kian Ming, Iskandar Fareez and Frederik Paulus go into more depth on the “10 Questions for Bank Negara” note. They explain why the downside risks to economic growth in 2021 appear to be too high to substantiate BNM’s growth estimates. As of late April 2021, recovery remains elusive, particularly given the low vaccination rates and rising case numbers suggestive of a fourth wave. In the continuing absence of targeted mitigation measures, such as a Find, Test, Trace, Isolate and Support (FTTIS) system, Malaysia will only be able to weather subsequent waves of infection by making difficult trade-offs between public health and the economy, which have both been under tremendous pressure in the last few months.

They also highlight the worry that optimistic forecasts in what is still an uncertain and volatile climate could lead to complacency. Overconfidence in the strong recovery forecast by BNM may be used to justify the premature withdrawal of support. Instead, what the country needs in the coming months is the expansion of fiscal and monetary stimulus measures to protect workers, promote consumption and empower SMEs as part of a broad strategy to rebuild the economy.

With this in mind, over the coming weeks REFSA will be introducing 10 strategies to build Malaysia back better. This will serve as a guide on how a responsible and responsive government should respond to the ongoing pandemic. Only once the government has a clear action plan detailing the proactive pro-growth policies in place – coupled with strong support for the labour market, households and businesses – can we then proceed with cautiously optimistic forecasts for economic growth in 2021 and beyond.