Malaysia’s Real GDP projected to grow at a rate of 9% in 2021

Subtitle:
IMF projects Malaysia’s unemployment rate to spike to 4.9% in 2020 before easing to 3.4% in 2021

By Stella Goh – As published in Inve$t Malaysia 17 April 2020 issue

On Monday (13Apr), the FBM KLCI shed 1.47 points or 0.11% from previous Friday’s close of 1357.50 but reversed the trend to continue to surge up to 1386.53 on Thursday (16Apr). As at Friday (17Apr) 10:00 am, the FBM KLCI continued its strong upward trend to 1407.93. 

Malaysia has the highest household debt to Gross Domestic Product (GDP) in Asia and has exceeded several high-income nations including United States (66%) and Japan (59.3%). According to Ambank Group’s Chief Economist Anthony Dass, the GDP outlook for 2020 will be much slower balancing between technical and full-fledged recession that will cause an increase in household debts. Ambank’s sensitivity analysis shows household debts against GDP could range between 82.3% and 88.6% this year and GDP to range between 0.4% to -2%. The relief measures unveiled by the government and central bank are expected to provide some short-term relief to the households. 

According to the International Monetary Fund (IMF), it has projected Malaysia’s real gross domestic product (GDP) to grow at a rate of 9% in 2021, the fastest among the Asean-5 countries which are expected to see a combined GDP growth of 7.8%. Besides Malaysia, the Asean-5 countries include Indonesia, Thailand, Philippines, and Vietnam which are set to expand by 8.2%, 6.1%, 7.6% and 7% respectively. IMF also forecasts Malaysia’s economy to contract 1.7% as the Asean-5 countries’ GDP shrinks 0.6% in 2020. The global growth is expected to rebound to 5.8% in 2021, reflecting the normalization of economic activity from a very low level. However some aspects that underpin the rebound may not materialize and the outcomes could be far worse depending on the course and extent of the Covid-19 pandemic. 

Malaysia’s Industrial Production Index (IPI) climbed 5.8% in February to a two-and-a-half-year high but it is unlikely to be sustained due to the Covid-19 pandemic. It results from an expected weak global demand coupled with supply chain disruption and factories closing temporarily during the Movement Control Order (MCO) periods. According to Malaysian Industrial Development Finance (MIDF), the outlook for the first half of year will be cloudy with major and emerging economies’ IPI remaining sluggish. Movement Control Orders and lockdowns in major economies such as US, Europe and Asia will impede global demand and exports. The plunge in global crude oil prices would also add pressure on the oil-exporting economies such as Malaysia, Australia, and Saudi Arabia. As a result of the gloomy outlook, MIDF is expecting the country’s IPI to contract in 1Q and 2Q of 2020. It has reviewed its IPI forecast from 1.5% to -2.8% y-o-y for 2020. 

The International Monetary Fund (IMF) in its recent World Economic Outlook April 2020 that was launched on Tuesday (14Apr), projects that Malaysia’s unemployment rate to spike to 4.9% in 2020 before easing to 3.4% in 2021. The labour force will be affected in 2Q2020 because many companies and particularly SMEs have been buffeted by both external headwinds and the internal MCO and its extensions. However MIDF maintains its confidence that the jobless rate will be remain below 4% for the whole year of 2020 as some of the stimulus measures announced by government may moderate the pressure. 

This week, the Ringgit has weakened against USD to 4.3668 on Thursday (16Apr) from 4.3283 on Monday (13Apr).  

KLCI past 1 year

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