Malaysia Braces for First Recession Since Global Financial Crisis
Malaysia Braces for First Recession Since Global Financial Crisis
(Bloomberg) -- The ever-deepening coronavirus crisis is pushing Malaysia toward its first recession since the 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 neighbors 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.
Malaysia’s government has unveiled handouts and other stimulus measures amounting to 250 billion ringgit ($58 billion), with much of the money aimed at preventing job cuts and loan defaults. As recently as two weeks ago, Prime Minister Muhyiddin Yassin projected the economy would grow 3.6%-4% this year. A revised forecast could be unveiled Friday when the central bank releases its annual report.
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.
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