World Bank cuts Malaysia’s 2020 GDP forecast again to -4.9%

by ALIFAH ZAINUDDIN / graphic by MZUKRI

THE World Bank has again revised its forecast of Malaysia’s economic growth this year to -4.9%, down from an earlier estimate of -3.1%, as uncertainties on the speed of global recovery heighten.

World Bank Malaysia lead economist Richard Record said based on the high frequency numbers seen in terms of recovery in consumption, export and manufacturing activity, the baseline case scenario of -4.9% contraction is likely, although some sectors are still severely suppressed.

“We’ve seen some movement and a return to growth is possible in the fourth quarter of 2020 (4Q20). The most likely scenario assumes the continued containment of the crisis in Malaysia and the gradual recovery in global economic activities will support Malaysia’s external performance.

“If we see a resurgence of the Covid-19 pandemic in the country, the suppression of domestic economic activities and consumption patterns will perhaps have a sharper impact on Malaysia’s economic outlook,” he told reporters via teleconference yesterday.

The World Bank’s projection is widely based on Malaysia’s 2Q20 performance, whereby the economy contracted by 17.1% as a result of virus-containment measures. Temporary closures and reduced business operations caused unemployment to rise to 5.1% — the highest in 30 years.

The World Bank, in its April 2020 East Asia and Pacific Economic Update, revised sharply its Malaysia GDP growth projection for 2020 from 4.5% to a 0.1% decline to reflect the severity of the economic impact of the Covid-19 outbreak.

Malaysia’s trade-reliant economy suffered a huge drop in exports and tourists in the first half of the year and remains vulnerable to abrupt changes in external financing conditions, according to the latest World Bank’s East Asia and Asia Pacific Economic Update report for October.

It said the country’s elevated unemployment rate and other weaknesses in the labour market would continue to weigh on private consumption, while elevated political risks could also see Malaysia recover slower than China or Vietnam.

Malaysia’s economic recovery is projected to pick up in 2021 with an estimated growth rate of 6.3%. There is, however, a large degree of uncertainty surrounding the estimate given the unpredictability of the longevity and severity of the pandemic.

The recent spikes in coronavirus cases globally, including in Malaysia, have reignited concerns of another large-scale lockdown.

Record said it would be a challenge for Malaysia to have another lockdown as it comes at a significant fiscal cost. He said Malaysia’s government debt level was already elevated before the crisis struck.

As for the risks that might stem from a potential snap election, World Bank Malaysia country manager Firas Raad said the concern is on whether key policies will change should there be a change in government.

Commenting on the deployment of the government’s stimulus packages, Record said Malaysia’s plan is among the biggest and fastest implemented globally.

“The speed and scale are equal to an advanced economy. There are systems in place which meant that the transfer of money could be done quickly.

“The challenge now is to be more nuanced by channelling aid to affected households or informal sectors and moving away from a blanket social support.”

Putrajaya has so far announced incentives worth RM305 billion to combat the virus fallout. The sum equates to about 20% of GDP.