PETALING JAYA: The Malaysian Institute of Economic Research (MIER) has revised downwards its worst case scenario for the country’s gross domestic product (GDP) growth this year, to minus 5.5% in real terms relative to 2019.
This is lower than the projected worst case scenario that was anticipated in April. Then, it forecast the GDP to contract by 3.6% from 2019’s level.
MIER said in a press release that this was due to new developments in the country that are having a bearing on the economy.
“This takes into account the deep decline in GDP growth rate in the second quarter (-17.4%), the reversal to around 2.0% in the third quarter and the current resurgence in Covid-19 cases, the new conditional movement control order, and the absence of additional government mitigation measures for the last quarter, especially for midsize SMEs, ” it said.
The institute also noted that the International Monetary Fund had also revised its Malaysia 2020 GDP forecast to a 6% year-on-year contraction from the previously estimated 3.8% contraction, while Bank Negara had revised their projection for 2020 to 3.9-4.9%.
“For 2021, we are maintaining our forecast of real GDP growth rate of 5.2-6.7% taking into account projections from MIER’s Crouching Tiger Initiative and the launch of the 12th Malaysia Plan early next year, ” it said.
“But, as the flattening of the pandemic curve has taken six months in the first wave, we expect the flattening of this third wave to take at least the same amount of time and delay the recovery to first quarter of 2021, ” the institute added.
MIER said the main downside risk to this projection for the economy was the current resurgence of the virus.
“The national emergency that had been proposed to counter the Covid-19 resurgence would have tanked the economy this year, and further delayed its recovery next year, ” it said.
“Although that proposal has been rejected, the pandemic remains the major downside to the speed of economic recovery in 2021, and threatens to turn a V-shaped reversal to a U-shaped one, ” the institute added.
The latest MIER Business Conditions Index indicates that manufacturers had a boost in confidence level during the third quarter of 2020, compared to the second quarter.
“While MIER’s Business Expectations Index had shown a marginal upturn in confidence in the third quarter, the economic momentum for the rest of the year will depend on further support from the government, especially in the higher end of the SME sector, ” it said.
MIER also noted that employment conditions in the third quarter of this year showed a deterioration compared to the preceding quarter.
“Almost half of the respondents or 40% had reduced their employees as compared to only 6% in the second quarter of 2020.
“The sectors comprises wholesale and retail trade, construction and creative industries, ” it said.
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