Malaysia Braces for First Recession Since Global Financial Crisis

Malaysia’s gross domestic product is now expected to shrink 0.1% this year, down from an earlier forecast for 4.5% growth, the World Bank said in a report Monday. Analysts from RHB Bank Bhd. and Oversea-Chinese Banking Group Ltd. also warned of recession or even contraction this year as Malaysia weathers a four-week lockdown that has put its economy on pause.

The coronavirus outbreak “has led to major negative spillovers in the domestic economy,” the Washington-based lender wrote about Malaysia. “The large degree of uncertainty over the outcome of the outbreak presents a major downside risk to the economy.” Malaysia’s neighbours also are seeing this year’s potential growth wiped out. In Singapore, where the economy contracted by the most in a decade in the first quarter, the government now expects GDP to shrink by as much as 4% this year. Thailand’s central bank expects the economy to contract 5.3% this year, its worst performance since the Asian financial crisis more than two decades ago.

The report said the pandemic isn’t the only challenge facing Malaysia, which is also grappling with plunging commodity prices and concern over political stability after an abrupt change in government last month. Malaysia’s net exports and investments, which slowed in 2019 due to the U.S.-China trade war, may see an even larger contraction this year, the World Bank said. Expansion of private consumption, the country’s main growth driver, is set to fall to 1.6%, from 7.6% last year. The World Bank expects widespread disruptions to economic activity for most of 2020, partially recovering toward year-end. If the outbreak is prolonged it could weigh on next year’s growth too, the bank said.

RHB, in a research note, said it now expects Malaysia’s economic growth to be flat this year, down from a previous forecast of 4.0%. “As things are fluid at the moment, we see further downside risk and cannot rule out the possibility of a recession,” RHB senior economist Ahmad Nazmi Idrus wrote.

OCBC economist Wellian Wiranto revised down his forecast for Malaysia’s economy, ranging from a 2.5% contraction to 1.5% growth, though he noted the high degree of uncertainty.
With so many factors in flux — from crude-oil prices to the course of the pandemic to the extent of Malaysia’s lockdown period — “economic forecasts, to be extremely frank, have been rendered largely meaningless,” he wrote in a research note.

In a related development IHS Market said Malaysia’s manufacturing sector has cut production volume last month in response to the Covid-19 pandemic. The firm said the global pandemic had reduced demand and restricted operating capacities due to severely delayed deliveries of inputs. IHS Matket expects Malaysian manufacturers to make further cuts in production in the next 12 months. Concerns that the global pandemic would have a long lasting damage resulted in sentiment falling to its lowest level since January 2016. The negative outlook was also linked to the prospect of sustained supply chain disruption, it added. IHS Markit said new business from domestic and external clients had fallen as the negative economic impact from the pandemic intensified in March. The headline IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI) fell to 48.4 in March, from 48.5 in February, signalling a further drop in momentum across the Malaysian goods-producing sector. The output index fell to its lowest level since June 2016, signalling a sharp slowdown in manufacturing production in Malaysia as demand and supply side factors adversely impacted output volumes.

The International Monetary Fund (IMF) Friday officially declared that the global economy has entered recession as a result of the spread of the Covid 19, which has shut down economic activities across the world. IMF’s Managing Director, Kristalina Georgieva, said they have reassessed the prospect for growth for 2020 and 2021. “It is now clear that we have entered a recession – as bad as or worse than in 2009,” she said in a news briefing on Friday. She suggested that the global economy would only recover if countries succeed in containing the virus. According to Georgieva, a key concern about a long- lasting impact of the sudden stop of the world economy is the risk of a wave of bankruptcies and layoffs. The IMF describes a global recession as a sustained period when economic output falls and unemployment rises.
It is simply an extended period of economic decline around the world.

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