KUALA LUMPUR – Malaysia’s economy is projected to contract by 3.1% in 2020 due to a sharp slowdown in economic activity caused by COVID-19 and measures to contain its spread, according to Surviving the Storm, the latest edition of the World Bank’s Malaysia Economic Monitor, released on June 25.
The World Bank expects growth to resume in 2021 at 6.9% as the outbreak eases. The near-term outlook,
however, is unusually uncertain at present. The COVID-19 pandemic coupled with a changing world of work also raises the need for a more enhanced social protection system in Malaysia.
Aggregate investment contracted for the fifth consecutive quarter by 4.6% in Q1 2020 (as compared to a contraction of 0.7% in Q4 2019), with broad-based weaknesses in both private and public investment. Due to weak external demand, Malaysia’s exports of goods and services declined for a third consecutive quarter by 7.1% in Q1 2020 (Q4 2019: -3.4%), the largest decline since the Global Financial Crisis in 2009.
Private consumption moderated to 6.7% in Q1 2020, down from 8.1% in Q4 2019, largely reflecting the substantial impact of COVID-19 and the Movement Control Order on retail, travel, leisure, and recreational spending and consumption of durable goods during the previous period.
The government responded to the economic impact of the pandemic with two rounds of the PRIHATIN economic stimulus package in February and March 2020, and the more recent PENJANA. Higher public spending coupled with declines in fiscal revenues, however, has led to a narrowing of fiscal space.
Therefore, reallocating expenditures towards priority areas, identifying new sources of non-tax revenue, and amending statutory limits on borrowing could help to temporarily expand fiscal space.
“Important social protection measures are needed to help vulnerable Malaysians survive the current economic storm and thrive in a new post-pandemic reality. Protecting livelihoods is important so that those who have lost their jobs and businesses are able to get back on their feet and contribute to Malaysia’s economic recovery,” said Firas Raad, World Bank Group Representative to Malaysia and Country Manager.
The report recommends that in the near term, government efforts focus on supporting relief and recovery efforts by deepening social assistance for lower income households, improving the delivery of social protection programs, and promoting job recovery.
As the recovery continues, further rounds of cash transfers will remain vitally important to mitigate acute financial strains among the most vulnerable groups in Malaysian society; and to support domestic consumption and human capital development during a severe economic downturn.
Over the medium and long term, support for lower-income groups can be gradually expanded to ensure that Malaysia’s social protection system provides a minimum level of protection to all households and individuals in need. This goal is well-aligned with the country’s own shared prosperity agenda and the equity outcomes of many high-income and developed nations which Malaysia is also aspiring to achieve.