KUALA LUMPUR, April 3 — Malaysia’s economy could shrink as much as 2.0 per cent for 2020 as a result of the coronavirus disease (Covid-19) pandemic, Bank Negara Malaysia (BNM) said in its Economic Monetary Review 2019 report.
The central bank concurred with the International Monetary Fund’s prediction of a worldwide recession matching the severity of the 2008 Financial Crisis, as countries grappled with Covid-19.
The report said the pandemic introduced significant uncertainties as a result of countries’ measures to try and contain the spread of Covid-19, putting pressure on global trade that grew by just 1 per cent last year due to unresolved trade tensions.
“Against this highly challenging global economic outlook, Malaysia’s GDP growth is projected to be between -2.0 to 0.5 per cent in 2020.
“The domestic economy will be impacted by the necessary global and domestic actions taken to contain the outbreak,” BNM said in the report.
The lower end of the prediction is the most pessimistic to date, exceeding the World Bank’s revised outlook of a 0.1 per cent contraction for Malaysia this year.
Tourism is set to be the worst-hit sector due to the travel restrictions countries have imposed to limit their exposure to Covid-19 as well as lingering aversion to travel once the health crisis subsides.
Aside from Covid-19, the local economy was also vulnerable to volatility in global oil prices as well as possible fluctuations in the production of key commodities such as palm oil.
BNM acknowledged that the unprecedented movement control order (MCO) Putrajaya implemented and extended to contain Covid-19 would weigh on economic activities but projected a recovery as early as the second half of 2020 or 2021 at the latest.
The central bank pointed out that both it and the federal government have taken aggressive measures to support the economy in this challenging period, citing the automatic six-month loan moratorium starting April as well as Putrjaya’s Prihatin stimulus package, among others.
If BNM’s predicted contraction comes to pass, it would be the first time that Malaysia’s economy has receded since 2009, when it shrunk 1.5 per cent in the aftermath of the global banking crisis then.
However, both pale in comparison to the turmoil that befell the country one year after the 1997 Asian Financial Crisis, when the economy contracted 7.4 per cent.
Privately, BNM officials expressed belief that the economic uncertainty from Covid-19 would dissipate quickly once the health crisis can be resolved, citing the country’s strong fundamentals.
Malaysia’s economic growth has moderated in recent years and expanded by just 4.3 per cent in 2019.