World Bank predicts 102pc drop in Malaysia’s 2020 GDP growth

Emmanuel Santa Maria Chin
Among the numbers cited by the report was the FBM KLCI’s sluggish performance tabulated during the period of January to April this year. ― Picture by Hari Anggara

KUALA LUMPUR, March 31 — The ever-growing economic uncertainties triggered by the Covid-19 outbreak, paired with a sluggish 2019 performance has led the World Bank to alter its 2020 gross domestic product (GDP) growth projections for Malaysia to -0.1 per cent.

This represents a -102 per cent drop from their original estimates of 4.5 per cent GDP growth for the same year, the World Bank explains that this revised reading reflects the severity of the economic impact of the Covid-19 outbreak.

The estimates were published in a report titled East Asia and Pacific Economic Update April 2020 that was published today.

However, they were quick to include that their estimates came with a high degree of uncertainty, and remains conditional to the overall outcome of the Covid-19 outbreak and subsequent economical policy responses by the government.

“Against the backdrop of growing uncertainty over the duration and overall impact of the Covid-19 outbreak, the World Bank’s GDP growth forecast for 2020 has been significantly lowered from 4.5 per cent to -0.1 per cent.

“This marked reduction incorporates the slower growth momentum from the second half of 2019, but more significantly, it reflects the impact of the outbreak under a scenario where the current large-scale disruption of economic activities would extend for most of the year, before a partial recovery toward the year-end,” the report predicted.

It noted how the effects of slower economic growth in Q3 and Q4 of 2019 had spilled over into their 2020 estimates for Malaysia, pointing out how numbers of exports and foreign investments are expected to contract further over the next 12 months as seen towards the end of last year.

Among the sectors which it indicated were the most severely affected by the outbreak is the electrical and electronics (E&E) industry due to their close integration with China-centric supply chains, and the tourism industry.

It noted how private consumption, as the main driver of the country’s economy, would also see a downward trend, adding how government expenditure is undoubtedly expected to balloon following the implementation of the stimulus packages and future initiatives taken to mitigate the economic and health impact of the caused by the outbreak.

It said that the estimated drop in private consumption over the year would also presumably affect the country’s poverty rating, which the report predicted would remain unchanged at 1.3 per cent.

Among the numbers cited by the report was the FBM KLCI’s sluggish performance tabulated during the period of January to April this year.

“Domestic financial markets have been severely affected by heightened risk aversion, reflecting concerns about the impact of the outbreak.

“Between January and mid-March 2020, the FBM KLCI dropped by 24 per cent and the ringgit depreciated by seven per cent against the US dollar,” read the report.

Among the future challenges predicted by the World Bank included the limited fiscal policy space the government would be afforded coming out of the outbreak, suggesting the recently announced stimulus packages would not be able to solve the potential long-term adverse effects suffered by the economy.

“More targeted fiscal policy interventions would be needed to help mitigate the impact of the crisis on vulnerable households and businesses, as well as increase public health capacity.

“This is further complicated by the plunge in commodity prices, which would put additional strain on fiscal space and in turn, may increase the burden on monetary policy as a key policy tool,” it projected.

The report also warned how poor containment and further deterioration of the Covid-19 outbreak locally could result in more severe and prolonged restrictions imposed on economic activities, which could drag into its growth performance outlook for 2021.

“Moreover, uncertainty over the country’s political stability following the recent change in the ruling coalition and the government’s ability to manage the outbreak could pose further downside risks to growth,” the report said. 

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