Malaysia’s GDP may shrink to a low of -2% in 2020 amid Covid-19 pandemic

Subtitle:
World Trade set to plunge as COVID-19 pandemic upends global economy

By Stella Goh – As published in Inve$t Malaysia 10 April 2020 issue

On Monday (6Apr), the FBM KLCI gained 11.04 points or 0.83% from previous Friday’s close of 1330.65, while trading volume across Bursa Malaysia neared six billion shares as Asian equities ended higher. Investors seemed to favor the possibility that the increase in new Covid-19 cases had slowed down and anticipated a truce in the Saudi Arabia-Russia crude oil price war as announced by POTUS. But the impasse so far has increased supply of the commodity and sent prices lower.  

Bank Negara Malaysia (BNM) warned that recession seems imminent if Malaysia’s GDP shrinks to a low of -2% in 2020 due to the economic impact of Covid-19 pandemic while Malaysia’s Movement Control Order (MCO) will pose a dampener on domestic economic activity. According to BNM governor Datuk Nor Shamsiah Mohd Yunus, the projected GDP for 2020 is expected to be between 0.5% and -2%. Spillovers from the global slowdown and the pandemic containment measures will result in large output losses in the first half of this year (1H20). As for oil, according to BNM assistant governor Marzunisham Omar, prices are expected to range between US$25 and US$35 per barrel this year. During MCO period, the domestic economy will be operating at around 45% of capacity. The labour market is expected to be considerably weaker as well.  

The Malaysian government announced an additional fourth stimulus package worth RM10 billion (US$2.3 billion) to help struggling small-and-medium-size enterprises (SMEs) affected by the Covid-19. The benefits include expanded employees’ subsidies, a special grant for micro SMEs, waiver of interest rates for the Micro Credit Scheme and a levy cut on foreign workers. The government also announced there is a rental exemption or discounts for SMEs operating on premises owned by government-linked companies and tax breaks for landlords that give rental discounts or exemptions. 

According to the World Trade Organization (WTO) Director General Roberto Azevedo, this crisis is first and foremost a health crisis which has forced governments to take unprecedented measures to protect people’s lives. The unavoidable declines in trade and output will have painful consequences for households and businesses, on top of the human suffering caused by the disease itself. The immediate goal is to bring the pandemic under control and mitigate the economic damage to people, companies and countries. But policymakers must start planning for the aftermath of the pandemic. These numbers are ugly and there is no getting around that. But a rapid, vigorous rebound is possible. Decisions taken now will determine the future shape of the recovery and global growth prospects. He urged Governments to lay the foundations for a strong, sustained and socially inclusive recovery. He presented two scenarios. In the optimistic scenario, the global merchandise trade could fall 13% in 2020 and rebound 21% in 2021 compared with a 0.1% contraction in 2019. While the gross domestic product (GDP) could contract by 2.5% in 2020 and grow by 7.4% in 2021. In a pessimistic scenario, the volume of global goods trade could drop by as much as 32% this year with the possibility of 24% increase next year. In this situation, world GDP could shrink by as much as 8.8% in 2020 and expand by 5.9% in 2021. If the optimistic scenario is achieved, the WTO projection will rival the modern peacetime record, which was set in 2009, when world merchandise trade volume declined about 12% and global GDP contracted 2%. If the pessimistic scenario is realized, it could be the most severe drop in global commerce since the Great Depression. 

As at Thursday (9Apr) the Ringgit had strengthened to RM4.3189 against the US dollar from RM4.3638 on Monday (6Apr). As at Friday (10Apr) 10:00 am, the FBM KLCI was at 1355.98. 

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