The central bank slashed its economic growth forecast for this year today after authorities imposed a new lockdown to fight a coronavirus surge driven by the highly-contagious Delta variant.
Like other parts of Southeast Asia, Malaysia is battling its worst Covid-19 wave yet, reporting tens of thousands of cases and hundreds of deaths a day.
The new lockdown, imposed in June, has forced the closure of most businesses and dealt a heavy blow to an already teetering economy – but has so far had little success in blunting the virus surge.
Citing the re-imposition of curbs, the central bank slashed its full-year growth forecast to between 3.0% and 4.0%, down from 6.0% to 7.5% previously.
However, Bank Negara added it expected “a gradual recovery in the fourth quarter this year, with higher global growth and sustained policy support providing a further lift to economic growth”.
Wellian Wiranto, an economist from OCBC Bank in Singapore, said the forecast downgrade increased the chances of the central bank cutting interest rates next month.
The central bank also reported gross domestic product rose a better than expected 16.1% in the second quarter compared to the same period a year ago, when the economy suffered a pandemic-induced collapse.
However, GDP shrank from the previous quarter.
Malaysia, which largely avoided the pandemic’s initial wave last year, has now reported over 1.3 million virus cases and almost 12,000 deaths.
But the country’s vaccination rollout has picked up speed, with about 30% of some 32 million inhabitants now fully inoculated.