KUALA LUMPUR -- The Malaysian economy is expected to grow between 6% and 7.5% this year, the central bank said on Wednesday, with COVID-19 vaccinations and stronger external demand driving a recovery from the 5.6% contraction for 2020.
Central bank Gov. Nor Shamsiah Yunus said growth this year would also be underpinned by higher private and public expenditures, while an accelerating immunization campaign will improve confidence.
"The Malaysian economy is projected to rebound in 2021, with the gross domestic product achieving pre-COVID-19 levels by mid-2021," she said in a virtual news conference. The new full-year estimate leaves slightly more room at the low end, compared with a previous forecast of 6.5% to 7.5% expansion.
"In our forecast, we assume that herd immunity will only be achieved in the first quarter of 2022," Nor Shamsiah explained. She also said the bank considered that Malaysia's international borders could remain largely closed for the entire year, but that internal movement control orders would likely become more targeted -- as opposed to blanket restrictions.
The central bank projected average headline inflation would hover between 2.5% to 4% this year, versus deflation of 1.2% in 2020.
Malaysia began its vaccine program in late February, with the first phase involving frontliners and parliamentarians. This is due to be completed by April. The second and third phases are expected to involve millions of Malaysians who register on a voluntary basis, with the government absorbing all costs.
Nor Shamsiah said Malaysia's integration into fast-growing segments of global value chains and diversified external trade structure, as well as continued policy support, would be key factors powering the rebound in 2021.
"While heightened downside risks to growth remain, the immediate policy focus of the bank is to facilitate a strong and sustainable recovery and minimize permanent output losses," she said. She suggested monetary policy would remain accommodative this year to help the economy gain and maintain momentum.
Nor Shamsiah said that even at a historical low overnight policy rate of 1.75%, the central bank still has leeway to provide additional assistance if needed. She said the bank would be mindful to avoid a premature withdrawal of monetary policy support.
On the global front, the governor said the economic recovery is building momentum, thanks to considerable progress in containing the COVID-19 pandemic with vaccine rollouts worldwide.
"Policy stimulus continues to provide support to economic activity," she said. "International trade has also recorded significant improvements."