Economic And Financial Developments In Malaysia In The Second Quarter Of 2021

The Malaysian economy expanded by 16.1% in the second quarter (1Q 2021: -0.5%)

The Malaysian economy grew by 16.1% in the second quarter (1Q 2021: -0.5%). Economic performance was supported mainly by the improvement in domestic demand and continued robust exports performance. The strong growth also reflected the low base from the significant decline in activity during the second quarter of 2020. Economic activity picked up at the start of the second quarter, but slowed down thereafter, following the re-imposition of stricter containment measures nationwide under Phase 1 of the Full Movement Control Order (FMCO). All economic sectors registered an improvement, particularly the manufacturing sector. On the expenditure side, growth was driven by higher private sector spending and strong trade activity. On a quarter-on-quarter seasonally-adjusted basis, the economy registered a decline of 2.0% (1Q 2021: 2.7%), weighed by the tighter containment measures. Governor Datuk Nor Shamsiah said “While the containment measures weighed on growth, greater adaptability to restrictions and ongoing policy support have partly mitigated the impact.”

As expected, headline inflation increased to 4.1% during the quarter (1Q 2021: 0.5%), due mainly to the base effect from fuel prices, as well as the lapse in the effect from the tiered electricity tariff rebate. Core inflation remained stable at 0.7% during the quarter (1Q 2021: 0.7%).

Exchange rate developments
The ringgit appreciated by 0.1% against the US dollar in the second quarter of 2021. This was largely due to the weakening of the US dollar in the earlier part of the quarter as a result of declining real US Treasury bond yields which led investors towards higher-yielding assets. However, expectations for a faster pace in monetary policy normalisation following the June Federal Open Market Committee (FOMC) meeting, which led to a slight rebalancing of investors’ portfolios towards US dollar-denominated assets at the end of the quarter. Since 1 July, the ringgit has depreciated by 1.7% against the US dollar (as at 9 August). This depreciation was in line with the performance of most other regional currencies amid the broad strengthening of the US dollar. Going forward, as uncertainties linger around the momentum of global and domestic economic recovery, the ringgit is expected to continue to be exposed to periods of heightened volatility.

Financing conditions
Net financing to the private sector recorded an annual growth of 4.4%1 during the quarter (1Q 2021: 4.7%). Outstanding loan growth moderated to 3.6% while outstanding corporate bond2 growth increased to 6.9%. Outstanding business loans recorded an annual growth of 1.3% amid slower outstanding investment-related3 loan growth. Nonetheless, outstanding working capital3 loan growth increased during the quarter. For households, loan demand continued to be forthcoming, particularly for the purchase of residential property.

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