Bank Negara has forecast Malaysia’s economy will contract as much as 2% on the weight of the loss in productivity and disruption in the global supply chain due to the Covid-19 pandemic. At the best-case scenario, assuming the situation is brought under control and economic activities return to normalcy quickly, the central bank expects Malaysia to chalk a growth of 0.5%. “Malaysia’s economy will not be spared as it is affected by the disruption in the global demand and domestic containment measures, ” said Bank Negara Governor Datuk Nor Shamsiah Mohd Yunus.

Before the outbreak that happened early this year, the Malaysian economy was poised for a 4.8% growth despite global headwinds caused by the trade war between the United States and China. However, the pandemic and restriction to movements have sent shock waves through the global supply chain and consequently dampened demand, a development that has swept across the globe.

In response to the contracting economy, governments have embarked on stimulus packages to help lift sagging consumer demand and hope to spur the supply of goods and services. Last week, the Malaysian government announced a RM250bil package, which the governor feels will cushion the impact on households and businesses. Bank Negara’s estimates showed that the stimulus package contributed to about 2.8 percentage points to economic growth. Nevertheless, the other engines of the economy, especially the manufacturing and tourism-related sectors are expected to see a sharp drop in activities and pull down the economy.

According to Bank Negara, the manufacturing sector is expected to contract by 8.6% due to the slower global demand, supply chain disruptions and constraints on operations during the period of movement control order (MCO). The mining, agriculture and construction sectors are also expected to contract. The only sector it estimates to continue to show growth is the services segment, which is expected to grow at a much slower pace of 2.3% in 2020.

Despite the overwhelming weak economic environment, Datuk Nor Shamsiah said the banking system was well positioned to weather and support the economy. “Stress tests affirm the resilience of the financial system even under severe economic conditions, ” she said in a virtual press conference to unveil Bank Negara’s 2019 annual report. She said banks were now in a stronger position compared to the last global economic crisis that happened in 2008 due to the financial crunch in the United States. Banks have total capital ratio of 18.4% as of February this year compared to 12.6% in 2008 while excess capital buffer stood at RM121bil now compared to RM39bil in 2008.

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