KUALA LUMPUR: With over 90% countries globally expected to be hit by recession in 2020 as a result of the Covid-19-induced crisis, the latest move by the world’s two leading economic institutions to downgrade Malaysia’s growth forecast yet again comes as no surprise.
This is mainly due to the 47-day movement control order (MCO) that began in March, which forced most businesses to shut down that grounded the economy.
The World Bank, which described Malaysia’s near-term outlook as “unusually uncertain, ” said in its latest Malaysian Economic Monitor report that its baseline projections show a pronounced output contraction of around 10% in the second quarter.The last time the domestic economy declined by more than 10% was in the final quarter of 1998, when growth plunged by 11.2% year-on-year.
For the first quarter of this year, Malaysia narrowly escaped a contraction with a growth of 0.7%. As for the full year 2020, the World Bank forecasts the Malaysian economy to decline by 3.1%
Earlier in April, the bank lowered its gross domestic product (GDP) growth forecast from 4.5% to a negative 0.1%.
Richard Record(pic below), the World Bank’s lead economist for Malaysia, said the contraction reflects a broad-based decline in private sector activity. Speaking during a virtual briefing yesterday, he pointed out that decline in net exports and gross fixed capital formation are likely to drag growth down in 2020.
The International Monetary Fund (IMF), on the other hand, also downgraded its 2020 GDP growth forecast for Malaysia to negative 3.8%.
In April, the economic watchdog revised its forecast to negative 1.7%, down from 4.5% earlier.
“First-quarter GDP was generally worse than expected (the few exceptions include, for example, Chile, China, India, Malaysia, and Thailand, among emerging markets, and Australia, Germany, and Japan, among advanced economies).
“High frequency indicators point to a more severe contraction in the second quarter, except in China, where most of the country had reopened by early April, ” the IMF said in its June 2020 World Economic Outlook Update report.
However, despite the subdued economic outlook for Malaysia and the rest of the world, not all is doom and gloom.
With businesses ramping up their operations since the end of the MCO in May, the World Bank foresees a partial economic recovery in the second half of 2020 as the outbreak eases and mobility restrictions are lifted. It also expects the economy to rebound in 2020, with a growth of 6.9%.
Record said that the government’s response has helped to blunt the impact of the crisis post Covid-19, although key gaps remain.
“Policies in the near term should focus on protecting the most vulnerable, and in the medium term on preparing the economy for recovery in a ‘new normal’ environment.
“The pandemic provides a window of opportunity for Malaysia to enhance its social protection system, ” he said.
Record also stated that there has been a distinct narrowing of fiscal space.
This was mainly due to the projected increases in expenditure following the four economic stimulus packages that will see direct government injection of RM45bil, as well as the downward pressures on revenue since oil-related and tax revenues are projected to decline.
As a result, the fiscal deficit could widen to as high as 7% of GDP if measures to reduce non-core spending or to raise additional non-tax revenue are not adopted, according to him.
Did you find this article insightful?
80% readers found this article insightful