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The Bank Negara Malaysia headquarters stands in Kuala Lumpur, Malaysia, on Wednesday, June 19, 2019.

Nadirah Zakariya | Bloomberg | Getty Images

Malaysia’s economy shrank 4.5% in the third quarter, losing its second quarter bounce, data released on Friday showed, but the central bank expected a quick recovery as coronavirus restrictions are eased and economic activities resume.

The contraction was markedly worse than the median forecast for a 1.3% contraction from a Reuters survey of economists.

Bank Negara Malaysia said however recent indicators suggested a more positive momentum, with growth to accelerate in the fourth quarter and into next year.

“The growth outlook remains subject to Covid-19 risk factors globally and domestically, stability in global financial markets and gradual easing of supply chain disruptions,” Bank Negara Malaysia Governor Nor Shamsiah Mohd Yunus told a news conference.

Malaysia’s economy had rebounded from a pandemic-induced slump in the second quarter, but a surge in Covid-19 cases and the re-imposition of curbs on movement have weighed on consumption and investment activity, Bank Negara said.

The central bank in August cut the country’s growth outlook for 2021 to 3% to 4%.

Coronavirus infection rates, however, have slowed drastically in recent weeks amid a ramped-up vaccination program, boosting hopes of a turnaround. More than three-quarters of Malaysia’s 32 million population are fully vaccinated.

Malaysia now expects growth to accelerate to between 5.5% and 6.5% next year as more sectors reopen and amid higher commodity prices and improved external demand.

Since last year, the government has rolled out 530 billion ringgit ($127.66 billion) in stimulus packages, while BNM has slashed its policy rate by 125 points to help the economy withstand the fallout of the pandemic.

BNM said its monetary policy stance would continue to be determined by new data and information, and that it was “mindful of a premature withdrawal of policy support.”

Nor Shamsiah emphasized that Malaysia was not facing any stagflation and that price pressures will remain moderate in 2022. Headline inflation had slowed to 2.2% in the third quarter, from 4.1% in the second.

“(We) will continue to closely monitor signs of a more entrenched recovery in an environment of price instability,” Nor Shamsiah said.

“The bank also remains vigilant against a buildup of financial imbalances.”