That dirty ‘R’ word…

Will BNM help bring some optimism that the economy will continue to expand, or prepare the country for a recession?


BANK Negara Malaysia’s (BNM) annual report 2019 to be released today will be much scrutinised as the local economy could be facing a potential recession triggered by the spread of the Covid-19 pandemic worldwide.

Government officials have yet to say the ‘R’ word, but no country would roll out a RM250 billion fiscal (17% of GDP) and monetary stimulus if the economy was expected to be in good health.

The tone of the report on the outlook for the Malaysian economy this year will be of much interest.

Will BNM help bring some optimism that the economy will continue to expand, or prepare the country for a recession as pressures weigh after the 4.3% growth in GDP enjoyed in 2019?

Should we prepare for a “V” shape recovery or “U” shape recovery, or even a “W” shape recovery?

The cycle suggests the time for one is right as the country has been in a recession every 10 years or so—it was in a recession in 1998, and then in 2009, and almost a decade later is starring one now.

What’s different now is that the whole world economy is facing a slowdown due to the virus with the threat of millions of workers

being displaced across the world, but the synchronised rollout of fiscal and monetary stimulus by almost all governments could help support a recovery, if the pandemic can be brought under control.

When releasing the fourth-quarter GDP number, BNM noted that the overall impact of the Covid-19 outbreak on the Malaysian economy will depend on the duration and spread of the outbreak, as well as policy responses by authorities. It expected growth will be supported by household spending, the realisation of approved private investment projects in recent periods and higher public sector capital spending.

Downside risks to growth include uncertainties in external conditions arising from the ongoing coronavirus outbreak, the various trade negotiations and geopolitical risks, as well as domestic factors, including weakness in the commodities sector and delays in project implementation.

That was well before the Movement Control Order (MCO) was initiated here and before most of Europe went into a shutdown or the US topping the infections chart.

The MCO, which began on March 18, has caused a massive disruption to economic activity with sectors like aviation and hospitality already in a recession where fleets are grounded, hotel occupancy rates at below 20% and employees told to go on non-pay leave or displaced all together.

The service and construction sectors have pretty much grounded to a standstill, while

manufacturing activities are well below capacity under the month-long MCO, all suggesting the first half of 2020 (1H20) will probably bear the brunt of the MCO impact.

Small and medium businesses are already warning of large layoffs due to the MCO, which hit consumption and investments.

The World Bank has forecast Malaysia’s economy could contract anywhere between -0.1% and 4.6% this year.

With new daily Covid-19 infections still in the three-digit level with the discovery of new clusters, one cannot help get the feeling the MCO may extend beyond April 14 as has been the case in most countries abroad fighting the pandemic.

The lockdowns and partial restricted movements abroad, together with the below capacity operations here, already suggest exports are set to contract in the months ahead.

Will BNM tell us otherwise?

  • Bhupinder Singh is the corporate news editor of The Malaysian Reserve.