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Malaysia: World Bank says return to growth likely in Q4
PETALING JAYA: The World Bank has forecast that the economy will take a bigger hit from the ongoing Covid-19 crisis with Malaysia’s real gross domestic product (GDP) expected to contract by 4.9% instead of 3.1% for the year.
The forecast revision reflects the heightened uncertainty of global economic recovery and elevated 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 containment efforts of the virus and gradual global economic growth.
“The main drivers for Malaysia’s economic recovery will be improvements in consumption and external trade.
“The recovery will be broad-based, with the exception of the tourism sector seeing slower recovery, ” he told a virtual press conference in conjunction with the World Bank’s October 2020 Economic Update for East Asia and the Pacific yesterday.
Record noted that Malaysia was riding out the pandemic better than regional counterparts, having responded swiftly with one of the fastest and largest scale of economic stimulus packages.
World Bank country manager for Malaysia, Firas Raad, said the country could see greater economic recovery next year at an estimated economic growth rate of 6.3%, should Covid-19 containment measures remain and global economic activity pick up.
The government expenditure is expected to increase mainly due to stimulus spending.The government has revised its 2020 fiscal deficit projection to 6% of GDP from 3.5% and expects to end the year with a debt of 58.2% of GDP.
Raad said the government debt remained manageable, given that the bulk of debt is denominated in local currency with medium to longer term maturities.
“Nonetheless, private debt continues to pose risks to the financial system, as household and corporate debt is relatively elevated.
“This is partly mitigated by high household financial assets and sound profitability of the banking sector, ” he said.
In the event that unemployment continues to rise and the Covid-19 pandemic uncertainty prolong, the World Bank said the number of vulnerable Malaysian households is expected to increase.
The report also cautioned the limited reliance on deferment or early withdrawal of retirement savings as most vulnerable Malaysians’ retirement was underfunded.
The upper-middle income poverty line of US$5.50 a day is forecast to increase slightly from 0.8% to 0.9% in 2020 due to higher unemployment, reduced work hours and slower business for small and medium enterprises (SMEs), slightly offset by government relief and recovery measures that cushion the impact on private consumption.
The US$5.50 per day poverty rate is projected to decline to 0.6% in 2021 and 0.5% in 2022.
As such, an enhanced social protection system is needed to provide more robust and sustainable protection beyond one-off crisis relief measures.
Record said challenges posed to the Malaysian government would lie on the winding down of some economic stimulus packages and shifting towards approaches targeted at the B40 and M40 segments.
Source: https://www.thestar.com.my/business/business-news/2020/09/30/world-bank-says-return-to-growth-likely-in-q4