ADB maintains GDP growth forecast for Malaysia at 6.5pc
KUALA LUMPUR: The Asian Development Bank (ADB) maintained its gross domestic product (GDP) forecast of a 6.5 per cent growth for Malaysia next year in its latest update, but downgraded this year’s performance to a five per cent contraction from -4.0 per cent previously.
“The economy will continue to be dragged down by the adverse effects of the Covid-19 pandemic on consumption, exports, and investment. Measures to contain the spread of the virus by restricting travel and business activity are weighing on household spending,” it said.
However, with restrictions relaxed from mid-June, some recovery was expected in the second half of the year with the release of pent-up demand, it said in its Asian Development Outlook (ADO) 2020 update released yesterday.
Malaysia’s GDP contracted by 8.3 per cent year-on-year in the first half of the year, a sharp reversal of the 4.7 per cent expansion in the same period last year.
The economy grew by 0.7 per cent in the first quarter but fell by 17.1 per cent in the second quarter.
The government has announced stimulus packages amounting to RM295 billion, including an estimated RM45 billion in additional fiscal expenditure.
While government fiscal stimulus and liquidity support that equalled to 20 per cent of the GDP was expected to boost domestic demand, weak labour market conditions under persistent layoffs and pay cuts would dampen consumer spending, it added.
In terms of sector, it said growth in agriculture should revive in the near term.
“Palm oil yield and production are expected to recover with better weather.”
However, ADB said mining was expected to continue to struggle under low global oil prices.
It said manufacturing would face headwinds from much weaker demand, both at home and internationally.
“Manufacturers were hit by MCO restrictions in the second quarter, under which only essential industries were allowed to operate, and even then at reduced capacity.
“However, with Covid-19 restrictions now relaxed, manufacturing is picking up pace.”
It noted that one bright spot in manufacturing had been the production of medical and pharmaceutical goods, exports of which increased by 22.2 per cent in the first half of the year.
On the services sector, ADB said hospitality and retail businesses were particularly hard hit by the MCO and Malaysians’ general reluctance to go out during the pandemic.
“While travel restrictions within Malaysia have been removed, domestic tourism is not expected to make up for the loss of international tourist arrivals.”
ADB said it expected external demand to remain weak and exports to shrink further.
The lower petroleum production because of plant maintenance and depressed oil prices will also significantly reduce earnings from oil and gas exports.
Slowdowns hitting domestic investment and exports will suppress imports of capital and intermediate goods.
“In sum, the current account surplus is projected to shrink to the equivalent of one per cent of GDP this year and widen to two per cent next year, both being downward revisions from 2.3 and 2.9 per cent, respectively, in ADO 2020 April,” it said.
Going forward, it said while providing extensive support to the people and businesses, the government was mindful of its rising fiscal deficit — projected to jump to 6.1 per cent of GDP this year from 3.4 per cent last year — and its rising ratio of debt to GDP.
The 2021 Budget is currently being prepared for presentation to Parliament in November alongside the Twelfth Malaysia Plan, 2021–2025.
“Ensuring a path back to sustainable fiscal balances will be key to Malaysia’s medium-term economic prospects. Muted price pressures will enable Bank Negara Malaysia to continue to pursue an accommodative monetary policy and so strengthen consumer and business confidence and support growth.”
On the downside, the outlook was vulnerable to external risks, in particular heightened volatility in international financial markets or a faltering global economic recovery, said ADB.
Another risk, it said, was uncertainty about how much global economic weakening would hamper growth in private investment.