Malaysia is in for a bumpy recovery said DBS economist Irvin Seah in a note on Wednesday.
Malaysia's GDP growth in 2020 is expected to slump to -5.5 per cent, the worst since the Asian Financial Crisis (-7.4 per cent). That being said, with the impending global recovery and the low base this year, GDP growth is projected to register 6.0 per cent in 2021, said Mr Seah.
Inflation has bounced back after the drop in April to May.
"We now expect full year inflation to average -1.1 per cent while Bank Negara Malaysia will also maintain the overnight policy rate at 1.75 per cent for the rest of the year," said Mr Seah.
On the external demand front, exports and industrial output which fell sharply due to regional supply chain disruptions earlier this year have recovered by June to July.
"After the plunge in PMIs in the key markets, most have recovered after the resumption in regional supply chain and recovery in China," said Mr Seah. "The turnaround in global electronics cycle is another key catalyst for the turnaround in Malaysia's manufacturing sector."
On the domestic demand front, overall business and consumer sentiments have declined due to the dire economic outlook and poor employment prospects. However, there are tentative signs of bottoming out.
In addition, investment activities are expected to remain slow given the weak growth in imports of capital goods, but business loan growth has picked up with government support measures.
The infection curve for Malaysia has flattened significantly after the implementation of the Movement Control Order (MCO) in March. Malaysia started lifting some of the MCO measures in June and workplace and transit activities has since recovered and are now on average about 20 per cent below pre-Covid levels.