KUALA LUMPUR (June 25): The World Bank and the International Monetary Fund (IMF) has revised their 2020 Malaysia economic forecasts to account for a larger year-on-year (y-o-y) contraction than previously estimated as the country contends with the impact of the Covid-19 pandemic.

The World Bank said in its June 2020 Malaysia Economic Monitor, which was launched today, that Malaysia’s economy, as measured by gross domestic product (GDP), is projected to contract 3.1% due to the significant impact of economic disruptions resulting from the country’s movement control order (MCO) to curb the spread of the pandemic. 

Prior to the June 2020 Malaysia Economic Monitor forecast, the World Bank said in its April 2020 East Asia and Pacific Economic Update that its Malaysia GDP growth projection for 2020 had been revised sharply downwards, from 4.5% to a 0.1% contraction to reflect the severity of the economic impact of the Covid-19 outbreak.

In the June 2020 Malaysia Economic Monitor, the World Bank said a pronounced output contraction of around 10% in the second quarter of 2020 (2Q20) is envisioned, reflecting the significant impact of the economic disruptions resulting from the MCO imposed during the quarter.

"This is expected to be followed by a partial recovery in the second half of the year, as the outbreak eases and mobility restrictions are gradually lifted. This forecast assumes that the spread of pandemic is broadly contained at the global level and that the massive fiscal and monetary policy support measures implemented by governments around the world limit the depth of contraction in global economic activity. With all these factors, the near-term outlook for Malaysia’s economy is unusually uncertain at present.

"The Covid-19 pandemic has resulted in an unprecedented crisis that requires large-scale and unconventional policy responses by governments everywhere. With the crisis severely affecting private demand and causing supply shocks, the government is tasked with the responsibility of facilitating economic recovery in the near term. Malaysia’s economy remains resilient and rests on strong fundamentals. Its diversified economic structure, sound financial system, effective public health response and proactive macroeconomic policy support suggest that Malaysia will be able to ride out the storm better than many other countries,” the World Bank said.

As such, the World Bank said it expects Malaysia GDP growth to resume in 2021 at 6.9% as the outbreak eases. 

Meanwhile, the IMF has revised its Malaysia 2020 GDP forecast to a 3.8% y-o-y contraction from the previously estimated 1.7% contraction as the Covid-19 pandemic has had a more negative impact on global activity in the first half of 2020 (1H20) than anticipated.

The IMF said in its June 2020 World Economic Outlook Update report on Wednesday (June 24) that global economic recovery is projected to be more gradual than previously forecast.

"Global growth is projected at -4.9% in 2020, 1.9 percentage points below the April 2020 World Economic Outlook forecast. For 2021, global growth is projected at 5.4%. Overall, this would leave 2021 GDP some 6½ percentage points lower than in the pre-Covid-19 projection in January 2020. 

"The adverse impact on low-income households is particularly acute, imperilling the significant progress made in reducing extreme poverty in the world since the 1990s,” the IMF said.

The World Bank and IMF’s revised 2020 GDP forecasts for Malaysia indicate a larger contraction than Bank Negara Malaysia's (BNM) estimates.

BNM said in its Economic & Monetary Review 2019 report dated April 3, 2020 that against the highly challenging global economic outlook, it projected Malaysia’s GDP growth to be between -2% and 0.5% in 2020.

According to the central bank, risks to global growth were tilted to the downside, mainly reflecting significant uncertainties surrounding the Covid-19 pandemic. 

"The extent of the economic impact arising from this pandemic would be contingent on the severity and duration of the outbreak in various economies and the corresponding measures undertaken to contain this global health crisis. Weakness in the real economy could be further weighed down by prolonged tightening of global financial conditions,” BNM said.

Malaysia’s 2019 GDP grew 4.3% from a year earlier, while 1Q20 GDP expanded 0.7%, according to BNM and the Department of Statistics Malaysia.

For 1Q20, BNM said in a statement on May 13, 2020, on a quarter-on-quarter seasonally-adjusted basis, the economy contracted 2% during the quarter.

"The global and Malaysian economic outlook for 2020 will be significantly impacted by the Covid-19 pandemic as strict measures to contain the spread of the pandemic will weigh considerably on both external demand and domestic growth. The Malaysian economy is expected to contract in the second quarter. This reflects the longer duration of containment measures both globally and domestically.

"When these containment measures are eased and the domestic MCO is lifted, economic activity is expected to gradually improve in 2H20. The sizeable fiscal, monetary and financial measures and progress in transport-related public infrastructure projects will provide further support to growth in 2H20. In line with the projected improvement in global growth, the Malaysian economy is expected to register a positive recovery in 2021,” BNM said.

Malaysia's MCO, which was initially scheduled between March 18 and 31, 2020, requires non-essential businesses to stop operations, while the public was ordered to stay at home to curb the Covid-19 outbreak.

On March 25, Prime Minister Tan Sri Muhyiddin Yassin said the government decided to extend the MCO until April 14, because updates from the National Security Council and Health Ministry indicated an increase in Covid-19 cases. 

On April 10, Muhyiddin said the government was extending the MCO until April 28.

On April 23, Muhyiddin said the MCO would be extended for another two weeks until May 12.

On May 4, news reports, quoting Senior Minister (Security Cluster) Datuk Seri Ismail Sabri Yaakob, indicated that regulations under phase four of the MCO were null and void with the commencement of the conditional movement control order (CMCO) or phase five of the MCO.

On May 10, Muhyiddin said the CMCO would be extended to June 9.

On June 7, Muhyiddin said the CMCO scheduled to expire on June 9 will be replaced with the recovery movement control order beginning June 10 until Aug 31.