Malaysia to slump into recession this year before recovering in 2021

World Bank’s baseline scenario is an anticipated recovery in 4Q20, whereby economy will bounce back in 2021 with a 6.4% growth

by DASHVEENJIT KAUR & NUR HANANI AZMAN/ pic by MUHD AMIN NAHARUL

MALAYSIA is expected to slump into recession this year, its first since 2009, as the coronavirus pandemic robs the country of its wealth expansion, sends commercial activities into a tailspin and shutters export opportunities.

The World Bank Group in its latest assessment said the country’s economy will contract -0.1% for the whole of 2020, from the earlier forecast of 4.5% growth, and a total recovery could be expected in 2022.

Its lead economist Dr Richard Record said presently it is difficult to predict the recovery period and a worst case scenario will see the pandemic spilling over 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 (4Q20), whereby the economy will then bounce back in 2021 with a 6.4% growth forecast.

“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,” he said during a conference call yesterday.

The World Bank has released its latest economic report titled “East Asia and the Pacific in the Time of Covid-19”.

Record said the two economic stimulus packages totalling more than RM250 billion announced by Malaysia were the “right medicine” to preserve the structure of the economy.

Malaysia’s GDP growth before the coronavirus pandemic 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.

“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,” according to the report.

The World Bank expects net exports and investments to experience a larger contraction this year, while private consumption is expected to grow at a much slower pace of 1.6% in 2020 from 7.6% last year.

Government expenditure is expected to rise due to the various measures to mitigate the economic and health impacts of the outbreak, but the bulk of stimulus activities are expected to be off-budget in nature.

“Because private consumption is projected to grow at only 1.6% (0.4% in per capita terms), the US$5.50 (RM23.75)/day 2011 PPP poverty rate is projected to remain unchanged at 1.3% in 2020.

“More significant are the expected employment and income losses among the bottom 40% (B40) and even the middle 40% (M40),” according to the report.

“Moreover, uncertainty over the country’s political stability following the recent change in the ruling coalition and the government’s ability to manage the outbreak could pose further downside risks to growth,” it added.

Analysts, however, said the -0.1% growth reversal would be less damaging as the country would be producing almost the same value in economic activities like in 2019.

Putra Business School Assoc Prof Dr Ahmed Razman Abdul Latiff said a majority of other countries would experience the same situation.

“Malaysia is a net exporter country and thus heavily dependent upon external demand for its products and services.

“When the whole global economy is experiencing lower business activities, it will definitely affect Malaysia’s exports,” he told The Malaysian Reserve (TMR).

Ahmed Razman said the government can still act on the situation since the pandemic is likely to be contained within 2Q20.

“Most important is to revive the economy during 2H20 through targeted fiscal stimulus packages and aggressive efforts in identifying potential new revenues and reducing unnecessary expenditures,” he said.

Oversea-Chinese Banking Corp Ltd economist Wellian Wiranto said the World Bank’s growth forecast downgrade provides a “temperature check” on just how much economic prospects have changed in a short span of time.

“On our end, we have recently shaded down the midpoint of our forecast range to -0.5% from 1.7% previously.

“A big chunk of the downward revision has to do with the tremendous pressure on the exports sector,” he told TMR.

He said exports will be hit with slumps in demand from major economies including the US, Japan 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,” Wiranto added.

RHB Investment Bank Bhd projects zero GDP growth for 2020 due to lacklustre export demand and 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,” economist Ahmad Nazmi Idrus said.