PETALING JAYA: Malaysia’s 2020 real gross domestic product (GDP) is expected to contract by 4.9% relative to a lowered 2020 baseline or by -1% relative to 2019, under the latest worst-case scenario forecast by the Malaysian Institute of Economic Research (MIER).
MIER deputy director Prof Jamal Othman said it has lowered its 2020 baseline to RM1.41 trillion (worst-case) and RM1.47 trillion (best-case) in real GDP terms, from RM1.48 trillion initially, after incorporating the fall in oil prices, movement control order (MCO) impact and government stimulus.
He said the value of real GDP losses relative to 2020 baseline, under the worst-case scenario, is RM72 billion.
“Without the Prihatin stimulus, the GDP loss would amount to RM123 billion,” Jamal said at the MIER National Economic Outlook 2020/2021 webinar today.
Also under the worst-case scenario, an estimated 1.46 million jobs will be lost, with some 955,000 jobs protected by the stimulus. This would bring income losses of RM128 billion.
Private consumption is expected to fall by RM106 billion, while overall prices would fall by 3.33%.
MIER assumes production and trade may not fully recover (about 96-98% capacity) by the fourth quarter of 2020 and into the first quarter of 2021 as well.
In contrast, under a best-case scenario, Malaysia’s real GDP in 2020 is likely to decline 0.29% relative to the 2020 baseline or grow by 3.8% relative to 2019. This is in line with both Bank Negara Malaysia and World Bank expectations for Malaysia in 2020.
The value of real GDP losses relative to 2020 baseline would be RM7 billion. Without the Prihatin stimulus, the GDP loss would be RM60 billion.
Abiut 1.05 million jobs would be protected under the stimulus, with income losses coming in at RM46.4 billion, and private consumption is to fall by RM38.6 billion – assuming economic activities including trade and investment fully rebounds by the third quarter of 2020 and further strengthens through 2021.
“For both scenarios, the Prihatin stimulus is likely to cushion the decline in GDP by as much as RM50 billion or 3.6% of projected best-case scenario GDP in 2020,” said Jamal.
“As the economy plummets under the three phases of MCO, we further assume a disequilibrium in the Malaysian labour market for 2020 and 2021.”
MIER chairman Tan Sri Dr Kamal Salih said the longer the containment policy (MCO) is maintained by the Malaysian government beyond April 28, the deeper the recession will be in 2020.
“On the other hand, a premature economic opening (without the strictest of containment protocols), may lead to the risk of reinfectivity. This is not an easy trade-off for the government,” he said.
MIER had previously estimated that any extension of the MCO from April 14 onwards could lead to economic contraction by 2% of GDP growth.
Meanwhile, for 2021, GDP is projected to grow further by 5.2% (worst-case) and 4.3% (best-case), respectively. The higher projection in the worst-case scenario is due to the lower GDP base in 2020.
In real value terms, this is 4.1% and 8.23% higher, respectively, than the 2019 levels.
With new capital-technology injection and productivity increases, there is scope for a larger GDP growth in 2021 should the Covid-19 pandemic subsides in Malaysia and worldwide, particularly within Malaysia’s main trading regions.
On recommendations, MIER has called for the establishment of policies and pertinent macro measures to move the economy towards resiliency and sustainable wellbeing, as opposed to the growth-oriented policies of the past decades that ignored the sustainabiity of growth processes.
It also called for a strengthening of the roles of the Malaysian agricultural sector, particularly for food security and sovereignty.
In addition, the institute said the government should consider introducing a smart taxation scheme, and empower community-based economics for resiliency and sustainable welfare.
source https://www.thesundaily.my/business/mier-malaysia-s-2020-real-gdp-could-shrink-by-49-relative-to-lowered-baseline-at-worst-CF2326105
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