With the Covid-19 pandemic shuttering export opportunities and sending commercial activities into a tailspin, Malaysia will likely slump into recession this year.
This comes as the country’s economy is predicted to contract -0.1% in 2020, compared to an earlier forecast of 4.5% growth, according to the latest assessment of World Bank Group, which released its latest report titled “East Asia and the Pacific in the Time of Covid-19”.
World Bank Group’s Lead Economist Dr Richard Record noted that it is hard to predict the recovery period, with the worst case scenario seeing the pandemic spill into 2021.
“It really depends on whether the pandemic will get worse or see gradual recovery. Our baseline scenario is an anticipated recovery in the fourth quarter this year, whereby the economy will then bounce back in 2021 with a 6.4% growth forecast,” he said.
“However, a lower case scenario is where a prolonged pandemic spilling over into next year would only cause the local economy to recover in 2022 with a projected 4.1% growth.”
Record described Malaysia’s two economic stimulus packages totalling over RM250 billion as the “right medicine” to preserve the economy’s structure.
Prior to the coronavirus pandemic, Malaysia’s GDP growth was 4.5%.
“This marked reduction incorporates the slower growth momentum from the second half of 2019 (2H19), but more significantly, it reflects the impact of the outbreak under a scenario where the current large-scale disruption of economic activities would extend for most of the year, before a partial recovery toward the year-end,” said the report.
“It is important to note that this estimate has a large degree of uncertainty, conditional on the rapid developments of the outbreak domestically and globally, and the subsequent policy responses.”
Meanwhile, analysts believe the -0.1% growth reversal will be less damaging since Malaysia will be producing almost similar value in economic activity like in 2019.
Putra Business School Associate Professor Dr Ahmed Razman Abdul Latiff noted that a majority of other countries would be in a similar situation.
“Malaysia is a net exporter country and thus heavily dependent upon external demand for its products and services,” he told The Malaysian Reserve (TMR).
“When the whole global economy is experiencing lower business activities, it will definitely affect Malaysia’s exports.”
According to Ahmed Razman, the government could still act on the situation given that the pandemic will likely be contained in the second quarter of 2020.
“Most important is to revive the economy during 2H 2020 through targeted fiscal stimulus packages and aggressive efforts in identifying potential new revenues and reducing unnecessary expenditures,” he said.
Wellian Wiranto, an economist at Oversea-Chinese Banking Corp Ltd, said the growth forecast downgrade by World Bank serves as a “temperature check” on how the economic prospects have changed within a short period of time.
“On our end, we have recently shaded down the midpoint of our forecast range to -0.5% from 1.7% previously,” he told TMR.
“A big chunk of the downward revision has to do with the tremendous pressure on the exports sector.”
Exports will be affected by the drop in demand from major economies such as Japan, US and the eurozone.
“The Movement Control Order (MCO) — while crucial in the fight to protect lives — has nonetheless come with a significant price tag for the economy,” said Wiranto.
RHB Investment Bank Bhd forecast a zero GDP growth for this year on the back of lacklustre export demand as well as MCO disruptions.
“Inevitably, the extension of the MCO is expected to lead to a halt in economic activities, resulting in a supply ‘shock’ to the economy,” said economist Ahmad Nazmi Idrus.