World Bank revises down Malaysia’s GDP

by NUR HAZIQAH A MALEK / pic by BLOOMBERG 

THE World Bank has revised down Malaysia’s GDP growth forecast for 2021 to 3.3% compared to earlier forecast of 4.6% growth due to the impact of the Covid-19 pandemic containment measures undertaken.

In its report yesterday, the international financial lender stated that the Movement Control Orders, increased precautionary behaviours and subdued labour market conditions will drag down private consumption and local economic growth in general.

The bank stated that the East Asia and Pacific region’s recovery has been undermined by the spread of the Delta variant, prolonging the distress for firms and households, likely slowing economic growth and increasing inequality.

Economic activity began to slow down in the second quarter of 2021, and growth forecasts have been downgraded for most countries in the region, according to the World Bank’s East Asia and Pacific Fall 2021 Economic Update.

While China’s economy is projected to expand by 8.5%, the rest of the region is forecast to grow at 2.5%, nearly two percentage points less than the forecast in April 2021.

Employment rates and labour force participation have dropped and as many as 24 million people will not be able to escape poverty in 2021.

“The economic recovery of developing East Asia and Pacific faces a reversal of fortune,” said World Bank VP for East Asia and Pacific Manuela Ferro.

“Whereas in 2020, the region contained Covid-19 while other regions of the world struggled, the rise in Covid-19 cases in 2021 has decreased growth prospects for 2021.

“However, the region has emerged stronger from crises before and with the right policies could do so again,” she said.

The damage done by the resurgence and persistence of Covid-19 is likely to hurt growth and increase inequality over the longer-term, the update finds.

The failure of, otherwise, viable firms is leading to the loss of valuable intangible assets, while surviving companies are deferring productive investments. Smaller companies have been hit the hardest.

While most firms have faced difficulty, larger firms are likely to see a smaller decline in sales and more likely to adopt sophisticated technologies and receive government support.

“Accelerated vaccination and testing to control Covid-19 infections could revive economic activity in struggling countries as early as the first half of 2022 (1H22), and double their growth rate next year,” said East Asia and Pacific chief economist Aaditya Mattoo.

“In the longer term, only deeper reforms can prevent slower growth and increasing inequality, an impoverishing combination the region has not seen this century.”

The report noted that poorer households suffer and are likely to lose more income, suffer greater food security as was seen with the white flag movement in Malaysia.

Such conditions would only increase the stunting, erosion of human capital and loss of productive assets thus, hurting the future earnings of households, and increase inequality between firms and workers.

The report also estimated that countries such as Indonesia and the Philippines can vaccinate over 60% of their populations by 1H22, and while that would not eliminate infections, it would significantly reduce mortality which can allow for the resumption of economic activity.

The bank report added that the region will need to address vaccine hesitancy and distribution limitations, as well as enhancing testing, tracing and isolation, increase regional production of vaccines to reduce dependence on imported supplies and strengthen health systems to deal with the prolonged presence of the disease.