MIER expects 2020 GDP to contract by 5.5%


THE Malaysian Institute of Economic Research (MIER) is revising down its real GDP projection for 2020 to -5.5%, followed by an assemblage of factors that have further burdened an already reeling economy.

It added that the revised projection is based on a deep decline of the economic growth rate of -17.1% in the second quarter (2Q); the resurgence in Covid-19 cases recently, followed by the re-implementation of the Conditional Movement Control Order; and the absence of additional government mitigation measures for the last quarter, especially targeted for small and medium enterprises (SMEs).

The think tank predicts negative effects on the country’s economy arising from the proposed state of emergency by Prime Minister Tan Sri Muhyiddin Yassin despite it being rejected by the King and Malay Rulers on Sunday.

“The proposed national emergency to counter the new Covid-19 resurgence in this quarter would have tanked the economy this year and further delayed its recovery next year.

“While that proposal had been rejected, the pandemic remains the major downside to the speed of economic recovery in 2021 and threatens to turn a V-shaped reversal to a U-shaped one,” it said in its 3Q outlook report on the Malaysian economy published yesterday.

The report added that the third wave of Covid-19 infections having occurred in 4Q puts a damper on the GDP growth indicated for the whole of 2020, but leaves the prospects for economic recovery in 2021 intact.

MIER stated that the GDP print for 3Q20 and 4Q20 would have registered a positive growth of between 2% and 2.5%, largely depending on the effectiveness of the stimulus packages of Prihatin and short-term Economic Recovery Plan (Penjana).

On unemployment, MIER expects the rate to remain stable, cushioned by the Prihatin and Penjana stimulus packages and loan moratorium — should it remain in place until year-end to support SMEs.

MIER expects the unemployment rates to remain manageable at 3.7% to 4.5% for 2020.

The economic research outfit highlighted that although the GDP contracted by 17.1% in 2Q, the unemployment rate showed declining trends.

MIER pointed out that its Business Conditions Index (BCI) indicated manufacturers felt a boost in confidence levels in 3Q, relative to 2Q. The BCI recovered significantly by 25.3 points to settle at 86.3 points in 3Q after a major drop of 22 points in 2Q.

Business sentiments remained cautious as the index was below the threshold level for seven consecutive quarters.

While the BCI had shown a marginal upturn in confidence in 3Q, MIER noted that economic momentum for the rest of the year will depend on further support from the government, especially to the higher end of the SME sector.

For 2021, MIER maintained its forecast of real GDP growth rate of 5.2% to 6.7%, taking into account projections from its “Crouching Tiger Initiative” and the launch of 12th Malaysia Plan early next year.

“As the flattening of the pandemic had taken six months in the first wave, we expect the flattening of the third wave to take at least the same amount of time, and thus will delay the recovery to 1Q21.

“While factoring in world prospects due to the Covid-19 pandemic on growth, trade and investment, the main downside risk to the projection remains the current surge of the pandemic,” it noted.

Moving forward, MIER said the mitigation process should involve further new measures to contain the Covid-19 pandemic and stimulus measures, including public spending and new incentives and investments to the private sector.

It also suggested the government to shift from a consumption-led and debt-driven economy to an investment- and technology-led transformation to get the country out of the middle-income trap.