by LYDIA NATHAN / Pic by TMR FILE PIX
THE World Bank has lowered its forecast growth for Malaysia’s GDP to 6% for 2021 from 6.7% previously in December 2020, due to the increase in Covid-19 cases, unemployment rate and political instability.
In its report the Economic Update for East Asia and the Pacific-Uneven Recovery, the World Bank said the country’s economy contracted by 5.6% in 2020, the sharpest downturn since 1998 as real output contracted by 3.4% in the fourth quarter (4Q) of 2020.
Lead economist Richard Record said Malaysia has limited fiscal space at a time where adequate government spending is needed to protect vulnerable households, strengthen the health sector and provide support to the economy.
“The current forecast reflects 1Q to be weak due to the Movement Control Order (MCO) and a delayed rebound in consumption activity. The forecast assumes a stronger rebound in 2Q with a continuous upward streak for 3Q and 4Q this year,” he said during the virtual launch of the report.
According to Record, the strength and timing of recovery are now largely dependent on the vaccination programme, expected to cover at least 30% of the population by August 2021.
“Growth is expected to be supported by the gradual strengthening of domestic demand following vaccine deployment beginning March 2021 and cautious improvements in external demand,” he said.
However, he said there will be significant downside risks if there is a resurgence in caseloads as this will dampen any recovery in consumption or investment.
“There have been global resurgences lately, so a lot of caution has to be exercised. We will continue to see the effectiveness in the vaccine programmes alongside economic recovery, but compliance is still vital to stop the spread,” he added.
Record commended the government’s stance on not implementing a blanket lockdown as it will cause serious economic consequences.
“The Malaysian government has been wise and has tried to target certain groups or areas for lockdowns. This is something that is encouraged by our side because it could cause extreme repercussions,” he said.
Additionally, the report also highlighted the weaker aspects of the country’s social protection system, which fragmented at best does not cover the estimated 40% of employees.
Record said many of the employees that were not covered included foreign workers and self-employed staff.
“These are the groups that were impacted the most during the pandemic. The crisis has strained savings buffers that were already chronically low for a large segment of low-and middle-income Malaysian households,” he said.
Meanwhile, Record said the outlook is looking better and is expected to have upside risks following successful mitigation of the third wave and an effective rollout and implementation of vaccination programmes.
“This could lead to a faster than expected recovery in domestic demand and greater investor confidence. The number of Malaysians living below the national poverty line is projected to decrease gradually and remain at pre-pandemic levels until 2022. The projection is also contingent upon a substantial rebound in employment and continued government relief measures to protect poor and vulnerable households pending the full recovery of the economy.”