KUALA LUMPUR: Malaysia’s potential output grew moderately 4.5 per cent last year and is expected to turn negative this year, Bank Negara Malaysia said in its inaugural Economic and Monetary Review 2019.
Potential output is the highest non-inflationary level of output that can be produced in an economy.
Bank Negara said the moderate growth was due to the contraction in investment activity as a result of softer business sentiments and the continued rationalisation efforts by the government.
“This was partially offset by the marginal improvement in labour force growth in 2019 (2.1 per cent growth; 2018: 2.0 per cent),” it said.
Meanwhile, the central bank said the country’s actual gross domestic product (GDP) expansion of 4.3 per cent last year was below potential output growth.
“This was due mainly to weaker external demand and supply disruptions in the commodities sectors that led to an underutilisation of resources.
“This led to the narrowing of the positive output gap to 0.4 per cent during the year (2018: 0.6 per cent).
“As such, price pressures were benign as the inflation rate remained stable at 0.7 per cent (Core inflation: 1.5 per cent) during the year,” it said.
Bank Negara said the output gap was projected to turn negative in 2020.
While the potential output is expected to grow between 4.3 and 4.8 per cent this year, actual output will be significantly affected by the adverse impact from the Covid-19 pandemic.
“Hence, actual output is projected to continue to grow at a slower pace relative to potential output in 2020,” it added.
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