Malaysia’s GDP, public investment to suffer sharp contractions since ‘98

Malaysia’s GDP growth and public investment in 2020 are forecasted (2020F) to suffer the sharpest contractions since the 1998 Asian Financial Crisis (AFC) at -5.7% and -19.8% respectively, according to the Malaysian Rating Corp Bhd (MARC).
MARC said all GDP expenditures are expected to decline in varying degrees, but public expenditure will expand by 4.6% year-on-year due to fiscal injections in 2020.
The economic recession due to the outbreak of Covid-19 will soon be proven to be the world’s
most devastating crisis since the Great Depression. As a small and open economy, Malaysia has not been spared from the brunt of these twin health and economic crises,” the agency said in a statement today.
In its 2020F figures, GDP is expected to decline at -5.7%, domestic demand (-5.6%), private consumption (-4.2%), public consumption (4.6%), private investment (-12.6%), public investment (-19.8%), real exports (-9.0%), real imports (-9.3%) and net exports (-7.0%).
Despite various attempts to support aggregate demand throughout the crisis, it said private
consumption will take a hit by decreasing 4.2% in 2020. 
Nevertheless, the agency said it will remain the mainstay for Malaysia’s growth, partly underpinned by policy stimulus such as the cumulative 125-basis points cut in the overnight policy rate and fiscal support to vulnerable groups.
“We expect growth in private consumption in 2021 to be sluggish following the trend of previous recessions,” it added.
For 2021F, MARC stated that GDP is expected to grow at 5.6%, domestic demand (5.8%), private consumption (6.2%), public consumption (3.3%), private investment (5.8%), public investment (8.3%), real exports (5.6%), real imports (5.3%) and net exports (7.6%).
MARC said Malaysia’s GDP growth to be supported by trade as exports outpace imports, albeit lower compared to pre-pandemic levels. 
Exports are expected to continue gaining traction from the upturn in global electronics demand and the increase in commodity prices, further supported by a rebound by Malaysia’s major trading partners such as China and Singapore.
MARC said the decline in aggregate demand will cause the inflation rate to register at an average of -1.1% in 2020. 
As demand picks up alongside higher energy prices, it further said the inflation rate will likely rise to an average of 2.0% in 2021.
The agency anticipated the unemployment rate to be at 4.5% in 2020 before declining to 4.0% this year.
“The present crisis will influence Malaysia’s appetite for reforms. Judging from the impact of the AFC on the Malaysian economy, we expect reverberations from the present crisis to linger for some time and accentuate the economy’s weak points. 
“On this note, we are hopeful that policymakers will take a longer-term view with a short-term action plan and build the right foundation for a stronger growth trajectory when risks subside in time,” it added.