COMMENT | Bank Negara Malaysia’s assessment for the Malaysian economy in the coming year shows the difficulties of forecasting during a period of significant disruption in economic activity.

On one hand, they are correct in highlighting that the balance of risks is on the downside but on the other, they have a very buoyant outlook for economic growth during what is likely to be a very turbulent year.

Given that Malaysia has been in lockdown for the first three months of 2021, BNM’s forecast that the economy will grow by 6.0-7.5% for the full year looks optimistic and may be due solely to comparing this year with the low base of last year.

A more realistic view of underlying growth in 2021 would be around 3% which does not indicate such a strong rebound.

In fact, BNM’s analysis of growth potential is tucked away in the back of their report and is consistent with our view that this crisis would leave us with a completely different economy. We calculated that underlying growth could be about 0.75% lower while BNM estimates 1.3%-1.5%. This is a significant structural break.

We should remember that this time last year, BNM forecast the economy could actually grow by 0.5% during 2020 or, at worst, suffer a mild 2.0% contraction which shows how difficult it is to forecast during a structural break like the one we are experiencing.

BNM’s predictions are in line with the 6% growth forecast by the World Bank last week but in April last year the World Bank forecast was also far off. They ...