World Bank revises Malaysia’s GDP growth to -0.1 percent

A man wears a facemask, amid fears over the spread of the Covid-19 novel coronavirus, at Saloma Link Bridge in Kuala Lumpur on March 12, 2020. (Photo by Mohd RASFAN / AFP)

The World Bank has revised Malaysia Gross Domestic Product (GDP) from 4.5 percent to -0.1 percent amid the Covid-19 outbreak.

In a report by the World Bank, East Asia and Pacific Economic Update, the World Bank highlighted that the ongoing Covid-19 outbreak has led to a major negative spillovers in the domestic economy.

The World Bank’s reduction in forecast incorporates slower growth momentum from the second half of 201 as it reflects the impacts of the outbreak under a scenario where the current large-scale disruption of economic activities would extend for most of the year.

Net exports and investments are expected to experience a larger contraction this year while private consumption is expected to grow at a much slower pace, from 7.6 percent last year to 1.6 percent this year.

The report also highlighted on the income losses among the bottom 40 percent and even the middle 40 percent.

World Bank further stated that initial impacts were mainly on the electrical and electronics (E&E) manufacturing sector, tourism and retain industries.

Recent time saw the outbreak become widespread that led the Malaysian government to announce a Movement Control Order (MCO) and two economic stimulus packages, totaling RM 250 billion.

World Bank further stated in the report that the domestic financial markets have been severely affected by heightened risk aversion, where the FBM KLCI dropped by 24 percent and the ringgit depreciated by seven percent against the U.S. dollar between January and mid-March 2020.

According to the report, the country’s economy expanded at much slower pace in the second half of 2019, growing at 4.4 percent in Q3 and decelerating further to 3.6 percent in Q4.

Private consumption remains to be the key driver of growth, anchored by positive income and employment growth.

The World Bank has also stressed on the various challenges arising from the outcome of the outbreak where the country could see more severe or prolonged restrictions on overall economic activities, posing a further drag on growth into 2021.

Another major challenge will include the limited fiscal policy space to respond to the crisis, and a deeper economic policy response would be needed should the crisis worsen leading to a longer duration of economic disruption.

The report further stated that more targeted fiscal policy interventions would be be needed to help mitigate the impact of the crisis on vulnerable households and businesses.

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