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PETALING JAYA: The World Bank has forecast that the economy will take a major hit from the current Covid-19 crisis and Malaysia’s real gross domestic product (GDP) is expected to contract by 4.9% instead of 3.1% for the year.
The forecast revision reflects the greater uncertainty of the global economic recovery and the high unemployment rate.
However, World Bank Group lead economist Richard Record said Malaysia could see a return to growth in the fourth quarter of the year, assuming continued virus containment efforts and gradual global economic growth.
“The main drivers of Malaysia’s economic recovery will be improvements in consumption and foreign trade.
“The recovery will be broad-based, with the exception that the tourism sector will see a slower recovery,” he said yesterday at a virtual press conference in conjunction with the World Bank’s October 2020 East Asia and Pacific Economic Update.
Record noted that Malaysia was weathering the pandemic better than its regional counterparts, having responded quickly with one of the fastest and largest-scale economic stimulus packages.
The World Bank’s country manager for Malaysia, Firas Raad, said the country could see a further economic recovery next year at an estimated 6.3% economic growth rate, if containment measures are maintained. Covid-19 and world economic activity recovers.
Public spending is expected to increase mainly due to stimulus spending. The government has revised its fiscal deficit projection for 2020 to 6% of GDP from 3.5% and expects to end the year with debt of 58.2% of GDP.
Raad said the government’s debt remains manageable, as most of the debt is denominated in local currency with medium to long-term maturities.
“However, private debt continues to represent risks for the financial system, since household and corporate debt is relatively high.
“This is mitigated in part by the high financial assets of households and the strong profitability of the banking sector,” he said.
In the event that unemployment continues to rise and the Covid-19 pandemic uncertainty drags on, the World Bank said the number of vulnerable Malaysian households is expected to rise.
The report also warned of limited reliance on postponement or early withdrawal of retirement savings, as the retirement of most vulnerable Malaysians was underfunded.
The upper-middle-income poverty line of $ 5.50 a day is projected to increase slightly from 0.8% to 0.9% in 2020 due to higher unemployment, reduced working hours, and slower business for small and medium-sized enterprises (SMEs) slightly offset by government relief. and recovery measures that cushion the impact on private consumption.
The poverty rate of $ 5.50 a day is projected to decline to 0.6% in 2021 and 0.5% in 2022.
As such, an improved social protection system is needed to provide stronger and more sustainable protection beyond exceptional crisis relief measures.
Record said the challenges facing the Malaysian government would lie in the liquidation of some economic stimulus packages and the shift towards approaches targeting the B40 and M40 segments.
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