Today, Bank Negara Malaysia (BNM) announced that the country’s GDP growth for the second quarter of 2020 is -17 percent year-on-year. However, upon closer analysis, we can see clear improvements in GDP growth from April (-28.6 percent) to June (-3.2 percent). The GDP growth in June 2020 GDP clearly indicates that the economy has rebounded strongly in line with its re-opening and the implementation of the Recovery Movement Control Order (RMCO).
The GDP contraction in 2Q2020 was to be expected due to the implementation of the Movement Control Order (MCO) that was imposed from March to May 2020 in response to COVID-19, significantly limiting economic activity and disrupting supply and demand. All major sectors such as Services, Manufacturing, Mining and Construction were adversely affected due to international border closures, and Malaysia’s MCO; which was among some of the region’s strictest lockdowns. It could also be argued that this strictness is what allowed the nation to contain the spread of the pandemic relatively well, thus allowing the nation to slowly reopen in May.
2Q2020 also saw a massive decline in GDP growth in countries all across the world as the unprecedented health crisis took root. The International Monetary Fund (IMF) has forecast that more than 150 countries worldwide will register a GDP contraction this year. Many nations, both developing and developed, have reported double-digit contractions in the quarter alone. These nations include Singapore, the Philippines, the UK, France, Italy, the US, and more.
Malaysia’s quick recovery from the economic damage caused by the MCO can be credited to the swift response by the government in implementing various economic stimulus and recovery packages. These include the PRIHATIN, PRIHATIN SME+, and the PENJANA packages launched in March, April, and June respectively.
Valued at RM295 billion (US$70.4b) in total, the economic stimulus packages comprise over 80 targeted measures and initiatives, focused on protecting and empowering the people, supporting and propelling businesses, as well as strengthening and stimulating the economy. As of 31 July 2020, these measures include:
- Support for over 800,000 businesses and SMEs to remain afloat through various measures such as the Special Relief Facility (RM10 billion), BSN microfinancing (RM500 million), PRIHATIN Special Grant (RM2.1 billion), Tekun financing (RM200 million), PENJANA Tourism Fund (RM1 billion), PENJANA microcredit financing (RM400 million) and PENJANA Property Sector Incentives (RM1 billion);
- An automatic 6-month loan moratorium, valued at RM100 billion for 6 months, has, as of 31 July 2020, provided a benefit totalling RM66.6 billion. Out of this figure, RM23.3 billion has benefitted businesses while RM43.3 billion, the rakyat, helping them to ease cashflow concerns, particularly during the MCO and CMCO periods.
- Extended Moratorium and Targeted Bank Assistance from 1 October 2020 onwards for borrowers who still find difficulty in servicing or paying their financing, as announced by the banking sector on 30 July.
As of now, there is a clear improvement in financing, consumer spending, and unemployment rate. Moving forward, the economy is expected to gradually pick up in the latter half of 2020. BNM has revised Malaysia’s GDP growth to -5.5 to -3.5 percent in 2020, while the PRIHAIN and PENJANA packaged are expected to contribute over 3 percent to this GDP growth in 2020.
Malaysia’s financial system fundamentals still remain fairly strong. Unlike the 2008 lobal Financial Crisis, the Malaysian banking system has been able to face this new challenge with a decent capital buffer, at RM121 billion. Ample liquidity, coupled with sound asset quality and a robust risk management framework, have continued to support lending activities and the overall economy.
In order to ensure the nation stays on track towards recovery, the government remains focused on its 6R strategy (Resolve, Resilience, Restart, Recovery, Revitalize and Reform). The upcoming Budget 2021 announcement that is scheduled for November 2020 will include discussions regarding the revitalisation phase of the recovery plan.
Nevertheless, given that Malaysia is an open economy, and uncertainties and volatility still exist in the external environment, the Government remains cautiously optimistic, and committed to ensuring sufficient fiscal space to manage future challenges.