The Malaysian economy contracted by 4.5% in the third quarter of 2021. This was largely attributable to the strict containment measures particularly in July, under Phase 1 of the National Recovery Plan (NRP).

Economic activity subsequently picked up as more states transitioned into Phase 2 with less restrictive containment measures. On the supply side, all economic sectors registered a contraction.

The construction sector contracted the most due to operating capacity limits. On the expenditure side, domestic demand declined by 4.1%, weighed down mainly by the contraction in private consumption and investment activities, while continued increase in public sector consumption spending provided support to growth.

Governor Datuk Nor Shamsiah said “Progressive lifting of containment measures and continued improvements in the labour market will be key to support the recovery going forward”. On a quarter-on-quarter seasonally-adjusted basis, the economy registered a decline of 3.6%.

Headline inflation moderated to 2.2% during the quarter. This was due mainly to the dissipation of the base effect from fuel prices, and the implementation of the three-month electricity bill discounts. Core inflation remained at 0.7% during the quarter.

Financing Conditions

Net financing to the private sector recorded an annual growth of 3.9%, reflecting lower growth in both outstanding loans and outstanding corporate bonds.

Outstanding household loan growth moderated to 3.2%, amid slower growth across all purposes. Loan applications and disbursements, however, improved in September given the relaxation of movement restrictions.

For businesses, outstanding business loans grew by 2.4%, supported by higher working capital loan growth. This expansion was also mainly driven by the wholesale and retail trade, restaurants and hotels, and manufacturing sectors, in line with the resumption of business activity amid the reopening of the economy.

The Malaysian economy is expected to improve following the normalisation of economic activities

According to the Central Bank of Malaysia, for 2021, the domestic economy is on track to expand by 3.0% – 4.0%. Growth will be supported by the increase in economic activities as containment measures are progressively relaxed, amid continued policy support. The various relaxations of restrictions for fully vaccinated individuals including for interstate travel would also spur tourism-related activities. In addition, the strength in global demand will continue to support export growth.

Going forward into 2022, Governor Datuk Nor Shamsiah explained, “Malaysia’s growth trajectory is expected to improve given resumption of economic activities, further improvement in the labour market, continued policy support and expansion in external demand. The progress and efficacy of vaccinations, compliance with Standard Operating Procedures (SOPs) as well as the ability to effectively contain outbreaks from any new COVID-19 variants of concern (VOCs) will be key to the expected recovery.”

Year-to-date, headline inflation has averaged 2.3%, and is projected to average between 2.0% and 3.0% for 2021. Underlying inflation, as measured by core inflation, is expected to average below 1.0% for the year.

In 2022, headline inflation is projected to remain moderate. As economic activity normalises, core inflation is expected to edge upwards but remain benign given the continued spare capacity in the economy and slack in the labour market. The outlook, however, continues to be subject to global commodity price developments and some risk from prolonged supply-related disruptions.

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