Impacts to the Economy in 2021 – What Have We Learnt?


Due to the increasing vaccination rates, the reopening of the economy during the second half of 2021 brought a significant impact to the national economy, business and the lives and livelihood of Malaysians. In other words, industries can revert to full-scale operations to fulfil the market demand and workers can now resume work at their office.

Consequently, this return to a new normal successfully stimulated the national economy which gained economic growth of 3.1% in 2021 by ramping up exports, jacking up domestic consumption and fuelling employment.

Below are the factors that have supported or dampened the recovery.

Global Economy

The World Bank stated that the global economy recovered from its recession by a negative by -3.3% in 2020 to achieve growth by 5.7% in 2022.

The revival of Malaysia’s national economy fuelled growth by dramatically increasing both domestic and external demand. Nevertheless, the disruption of the global supply chain caused by the pandemic-related closure of national borders and other factors has hampered significant development and financial recovery.

Foreign Labour Shortage

Industries were allowed to operate at full speed when the COVID-19 restrictions were relaxed. However, production was constrained by a severe shortage of foreign workers who returned to their home countries during COVID-19 pandemic and were unable to return due to closed borders.

Furthermore, the Government forcibly stopped hiring foreign professionals in 2021 and this restriction was only relaxed in February 2022. Indonesians, Bangladeshis and Myanmarese are the majority migrant workforce in Malaysia.

Commodity Prices

Malaysia’s economy remains reliant on commodity prices since Malaysia is a net exporter of crude oil and the world’s largest producer of crude palm after Indonesia.

Chart 1 and Chart 2 demonstrated that the price of both commodities dramatically increased in 2021. The prices of crude oil rose slowly from a low average of US$ 55 per barrel in January 2021 to a high average of US$ 74 per barrel in December of the same year, with a gain of 34.5%. For the entire year, the average price hit a high at US$84 (Oct 2021). Besides, the average price of crude palm oil rose by 28.3% during the same time frame, from US$ 990 per metric tonne in December 2020 to US$ 1,270 per metric tonne in December 2021.

Chart 1: Average Monthly Crude Oil Prices (Brent) (US$) Jan 2021- July 2022

Chart 2: Average Monthly Palm Oil Prices (US$) Jan 2021-June 2022

Interest Rates

BNM had lowered the Overnight Policy Rate (OPR) from 2.50% to 2.00 in May 2020 and lowered another 25 basis points to 1.75% in July 2020 in attempt to boost the economy and reduce the financial burden on Malaysians suffering from the COVID-19 pandemic’s effects. This low rare was kept throughout 2021.

On the other hand, fiscal and financial policies will keep reducing the negative economic effects on business and households, along with providing support to economic activity. The stance of monetary policy will continue to be influenced by updated data and information and their implications on the overall outlook for inflation and domestic economy due to uncertainties surrounding COVID-19 pandemic. The Bank is still dedicated to using its policy levers as needed, to establish the best circumstances for a long-term economic recovery.

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