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KUALA LUMPUR: The Asian Development Bank (ADB) has maintained its 6.5% gross domestic product (GDP) forecast for Malaysia next year in its September update, but lowered the 2020 growth rate to -5% from – 4% previously.
“The economy will continue to be dragged down by the adverse effects of the Covid-19 pandemic on consumption, exports and investment,” he said.
“Measures to contain the spread of the virus by restricting travel and commercial activity weigh on household spending.”
However, with restrictions relaxed as of mid-June, some recovery is expected in the second half of the year and the release of pent-up demand is already showing in wholesale and retail trade, which rebounded strongly in June, it said in its Asia. Development Outlook (ADO) 2020 Update released today.
Malaysia’s GDP contracted 8.3% year-on-year in the first half of 2020, a sharp reversal from the 4.7% expansion in the same period last year.
The economy grew 0.7% in the first quarter of 2020, but fell 17.1% in the second quarter.
The government announced stimulus packages worth RM 295 billion, including an estimated additional fiscal spending of RM 45 billion.
Fiscal stimulus and government liquidity support, equivalent in total to 20% of GDP, are expected to boost domestic demand, but weak labor market conditions due to persistent layoffs and wage cuts will continue to reduce spending on consumers said.
He said that with the Covid-19 containment measures lasting longer than expected when ADO 2020 was released in April and the world economy plunged into a severe recession, the update revises the forecast for GDP growth in 2020 from -4% to -5%.
“A 6.5% rebound is forecast for 2021,” he added.
In terms of the sector, he said that growth in agriculture should be reactivated in the short term.
“Palm oil yield and production are expected to rebound with better weather,” he said.
However, ADB said mining is expected to continue to struggle under low world oil prices.
He said manufacturing will face headwinds due to much weaker demand, both domestically and internationally.
In the services sector, ADB said the hospitality and retail businesses have been particularly affected by the shutdown and the general reluctance of people to leave during the pandemic.
Hotels, restaurants and transportation services are expected to languish as international travel remains severely restricted.
The ADB forecast that external demand will remain weak as the world economy slows and exports will contract further as Malaysia’s key markets are affected.
