KUALA LUMPUR (Aug 6): Amid the havoc wreaked by the coronavirus, Malaysia’s economy is likely to have hit its bottom in the second quarter of this year (2Q20), contracting by a double-digit percentage, said the Socio-Economic Research Centre (SERC).

Malaysia’s gross domestic product (GDP) moderated sharply to a 0.7% growth in 1Q20, compared with a 4.5% growth in 1Q19, mainly due to the impact of measures taken both globally and domestically to contain the spread of the Covid-19 pandemic.

“For this year, we are looking at a -3% growth [in GDP], but we will wait for the second-quarter number, which we expect to be the worst for the whole year,” SERC executive director Lee Heng Guie told reporters after presenting the Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM)’s business and economic condition survey report for this year.

Lee projected a contraction of more than 10% in GDP for 2Q20, saying that Malaysia, as an open economy, was not spared from the economic downturn seen in countries like Singapore and the US.

It was reported that Singapore’s GDP fell 12.6% year-on-year (y-o-y) in 2Q20 and shrank by 41.2% quarter-on-quarter (q-o-q) as circuit-breaker measures to stem the coronavirus pandemic took their toll. The US economy also took a hit in the quarter with GDP plunging 9.5% q-o-q, a drop that equals an annualised pace of 32.9%. 

“While the only exception so far is China [where its] 2Q GDP has shown positive [growth], that is something good for the region as long as [there are] no more negative surprises ... hopefully, in the third and fourth quarters, Malaysia's economy will recover slowly."

Lee added that the economic recovery will be more firm if a Covid-19 vaccine is discovered earlier than expected and if more economies recover globally.   

Meanwhile, almost half of the survey's respondents perceived a “U-shaped recovery” for the Malaysian economy in 2020 and 2021, while 39.4% expected an “L-shaped recovery”.

A U-shaped recovery would see the virus being contained with a recession in 2020, followed by a slow recovery in 2021, while an L-shaped recovery would occur if the virus is slowly contained with a recession in 2020, followed by no — or weak — growth in 2021.

On fiscal spending, a majority of businesses surveyed wanted to see public infrastructure projects implemented to stimulate domestic demand, with most calling for the government to expedite RM4 billion worth of small-scale projects, boost high-quality, value-creating foreign direct investment (FDI) and domestic direct investment, as well as invest in “new smart infrastructure” for digitalisation and sustainability.

To revive private investment, businesses — in looking forward to Budget 2021 — mostly expect a reduction in corporate tax, a suspension or reduction in foreign workers’ levy, and the reintroduction of the goods and services tax (GST) at a 3% rate.

A majority surveyed also called for the government to stimulate consumer spending through a tax holiday next year for those earning an annual taxable income of under RM100,000, exemption from tourism tax and service tax to spur domestic tourism, as well as a reduction in real property gains tax (RPGT) and stamp duty.