Economists revise 2Q20 GDP forecasts downward

Weak private consumption will be pronounced in 2Q20 due to the MCO, but a slow recovery will continue into 2H20


EXPERTS are revising downward their estimates for Malaysia’s economic growth this year amid the severity of the Covid-19 pandemic which has seen weakened economic activities, business closures and a spike in unemployment rates.

GDP for the second quarter of 2020 (2Q20) will plunge sharply due to the Movement Control Order (MCO), which has been enforced nationwide beginning March 18, to curb the spread of the deadly virus.

OCBC Bank (M) Bhd economist Wellian Wiranto expects GDP to shrink by 6% in 2Q20 before increasing in 3Q20. Full-year GDP should come in at -1% versus a previous estimate of 0.5% growth.

“In terms of sectors, we expect to see some resumption in global trade activities as major export destinations open up their economies again in the coming months. That should help Malaysia’s exports to eke out some recovery,” he told The Malaysian Reserve (TMR).

“The recent uptick in the IHS Markit Malaysia Manufacturing Purchasing Managers’ Index should be taken as an encouraging sign of production recovering some ground too.”

Although weakness in private consumption will be pronounced in 2Q20 due to the MCO, a slow recovery will continue into the second half of the year (2H20) if private consumption recovers — albeit at a slow pace.

Moving forward, there should be more awareness and take-up of fiscal and monetary stimulus measures that have been rolled out by the government, especially among the small and medium enterprises, Wellian added.

Meanwhile, Kenanga Investment Bank Bhd economist Atiqa Noor Azlan said the country can expect a recovery by 3Q20, but full-year GDP will remain in the negative territory.

“We are in the middle of revising our GDP forecast lower from our projection of -2.9%,” she told TMR.

Purchases of non-durable items should resume as retail venues or shopping malls are increasingly reopened, she added.

“However, the pace of improvement will be very gradual reflecting the elevated level of unemployment as sentiments remain low amid lingering worries over a resurgence of Covid-19 infections.”

Separately, Hong Leong Investment Bank Bhd (HLIB) lifted its full-year GDP forecast to -5% from -6%, based on sooner than expected easing of lockdown measures and government support in softening the Covid-19 impact.

The 2Q20 GDP will be the worst, contracting by between 12% and 15%, before registering a shallower contraction in 2H20 at an average of 4.2%, HLIB wrote in a note yesterday.

Affin Hwang Capital said on Tuesday that the economy will likely remain in the negative territory until year-end and contract by 3.5% for 2020, considering the global supply chain has yet to recover fully from the pandemic.

GDP for 2Q20 could narrow by as much as 9% due to weak exports in recent months, it added.

The World Bank last week revised downward its GDP forecast for Malaysia in 2020 to -3.1% from an earlier projection of -0.1% made in April, citing a sharp slowdown in economic activity arising from pandemic containment measures.

Lead economist Richard Record said the near-term outlook is “usually uncertain at present”. But growth is set to resume in 2021 at 6.9% as the outbreak eases.

The International Monetary Fund (IMF) also changed its GDP projection for the country to -3.8% from -1.7% previously, as the effects of the coronavirus on global economic movement were more severe than anticipated.

Global growth will slow to -4.9% this year, 1.9 percentage points below the April 2020 World Economic Outlook forecast, before surging to a 5.4% expansion in 2021, the IMF added.

Malaysia managed to post GDP growth of 0.7% in 1Q20, though this was the lowest in 10 years due to pandemic containment measures.

The GDP print is expected to turn negative in 2Q20, Bank Negara Malaysia (BNM) said in May. For the full year, it sees domestic GDP shrinking by as much as 2% or growing up to 0.5%.

BNM will release a revised forecast in 2H20 following greater clarity in data and the trading outlook.