KUALA LUMPUR (March 31): The World Bank has lowered its gross domestic product (GDP) target for Malaysia to -0.1% in 2020, against the backdrop of growing uncertainty over the duration and overall impact of the Covid-19 outbreak.

This is a significant drop from its previous GDP target of 4.5%.

The World Bank said the 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.

“It is important to note that this estimate has a large degree of uncertainty, conditional on the rapid developments of the outbreak domestically and globally, and the subsequent policy responses,” it said in its latest “East Asia and Pacific Economic Update April 2020” report today.

Looking ahead, the World Bank said net exports and investments in Malaysia are expected to experience a larger contraction in 2020, while private consumption is expected to grow at a much slower pace, from 7.6% in 2019 to 1.6% in 2020.

“Government expenditure is expected to increase on various measures, including the economic stimulus package and other key expenditures and initiatives to mitigate the economic and health impact of the outbreak, but the bulk of stimulus activities are expected to be off-budget in nature,” it said.

On the stimulus package, the World Bank said while it could help to mitigate the immediate impact of the outbreak, a deeper economic policy response would be needed should the health crisis deepen and result in a longer duration of economic disruption.

“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 said.

Elsewhere, the bank said precise growth forecasts were difficult, given the rapidly changing situation, but its baseline now called for growth in developing economies in the region to slow to 2.1% in 2020, and to -0.5% in a lower case scenario, compared to estimated growth of 5.8% in 2019.