KUALA LUMPUR, Aug 14 – Malaysia’s economy is experiencing a “V” shaped recovery after taking the brunt of the lockdown in the second quarter, but it is not out of the woods yet as challenges link to the pandemic and its adverse impact remains both in Malaysia and elsewhere.
Malaysia’s economy dipped 17.1 per cent in the second quarter of 2020 as the country went into a lock-down with strong enforcement to stem the spread of COVID-19 disease.
In the second quarter of 2019, Malaysia recorded a Gross Domestic Product (GDP) of 4.9 per cent.
“From a sharp contraction in April (when the lockdown took place) to a sharp rebound but once the lockdowns were eased.”
So, the economy is gradually recovering and the rebound will be much stronger in 2021,” Bank Negara Malaysia Governor, Datuk Nor Shamsiah Mohd Yunus said at a Senior Editors Briefing on Thursday.
BNM, she said, has revised its 2020 to -3.5 to -5.5 per cent from -2 to 0.5 per cent previously, as the initial assumption was based on a lockdown period of only four weeks instead of seven weeks.
The economy is expected to recover and post a growth of 5.5 per cent to 8 per cent in 2021.
Malaysia imposed a Movement Control Order (MCO) on March 18, 2020, which was eventually eased to Conditional MCO on May 4 and Recovery MCO effective June 10 to Aug 31, 2020, where the economy was gradually opened up.
“Because the lockdown was very strict and it was enforced strictly. We are able to reopen many sectors of the economy much faster than what we had anticipated earlier and that has minimised permanent dislocation of the economy. “
Nor Shamsiah said a sharp recovery is seen in several indices namely wholesale and retail sector, industrial production, exports and credit card spending is experiencing a notable improvement.
The unemployment rate eased slightly in June, at 4.9 per cent down from a record high of 5.3 per cent the previous month.
Jobless claims also moderated, while there has been a higher replacement rate, she said.
“Usage of electricity, re-hiring, production in factories are showing signs of normalisation,” the governor said during the 90 minutes briefing.
Explaining further, she said as the household demand picks up there would be a spillover effect on the economy.
She cited that purchase of new passengers that has turned around with a 6.3 per cent increase in June as compared with a decline of 99.7 per cent in April.
As the consumption by T20 and M40 accounts for the 80 per cent of private consumption, it would also help in the recovery process.
“And the consumption of this group of households will pick up as the domestic mobility restriction eases and with uncertainties surrounding the reopening of international borders. These households also are likely to reorient their international travel to domestic travel.”
Last year alone, Malaysians spent about RM51.3 billion on travel abroad. In 2010 it was only RM26.7 billion.
“So, there is scope for us to reallocate this spending into the domestic economy. And for domestic tourism to be the beneficiary of this spending.”
Besides these, Nor Shamsiah said Malaysia’s well-diversified economy has remained its strength.
Among others, she said Malaysia can bank on greater demands that were created by the pandemic namely the increase in healthcare spending and greater utilisation of semiconductor and medical devices, which are sectors and the country is a key player.
Malaysia is the sixth-largest global semiconductor exporter, home to leading global technology firms, the largest market for medical devices in ASEAN and ranked third in Asia for outbreak readiness.
“Put in the right policies to take advantage of the new normal and the new growth areas. We can do it because we already have the base. We are poised to benefit from this strength.”
However, having these green shoots doesn’t mean the country is out of the woods yet, she stressed.
“We are not at pre-COVID-19 level but neither are we staring down at a bottomless pit. It is important for us to make the necessary investments in areas that will strengthen the economy and maximise growth potential in COVID-19 resilient sectors.”
Medium-term fiscal consolidation and strategies need to be laid down, the 12th Malaysia Plan will have to consider structural policies that need to be put in place for the country to continue to be able to adapt to the new normal and generate economic activity, she said.
The downside risk remains in an event there is an outbreak that would lead to another lockdown and performance of the global economy.
“We are an open economy –how the global economy performs will have an impact on Malaysia’s economy,” she explained.
In June, the International Monetary Fund (IMF) projected a -4.9 per cent growth for the global economy in 2020, 1.9 percentage points below April 2020. For 2021, global growth is projected at 5.4 per cent.