PEOPLE are not sufficiently aware of the enormity of the impact of the outbreak on the global economy. It is not a question of how fast Malaysian companies can get back on their feet because global demand will not be there for a long while. The world is going to see the worst recession since the great depression.
Fitch has put global growth for 2020 at negative 1.3%. More recently, Goldman Sachs has revised its global growth estimates downwards to -2%. IMF’s chief economist, Gita Gopinath, has projected a negative 3% global growth for 2020.
It is not surprising that a global recession should emerge given the multiplicity of factors at work.
The crisis is unprecedented because it has provoked what may be called a deglobalisation response. By deglobalisation it is meant that countries have closed their borders to foreigners, shipments have halted, the aviation industry has come to a standstill, and the movement of raw materials, intermediate goods and labour is severely restricted.
In other words, almost everything that characterises globalisation is now restricted.
This includes the flow of people across borders, machines and equipment, raw materials and intermediate products, the movement of ships and aircraft.
Another feature of the Covid crisis is the simultaneous disruption of production and constrained demand due to wage shrinkage. The world’s leading engines of growth have been affected – the US, China, EU and Japan. These countries can be seen as nodes of growth which generate trade flows and global demand for goods and services, affecting the economies that they are linked to. This can be expected to reduce the flow of goods across nations as well as the demand for inputs. The lower demand for goods has had an effect on commodity prices and the decline in the price of oil to an 18-year low is symptomatic of this.
A WTO study forecasts that Asean is likely to demonstrate a -9.3% change in real exports for 2020 relative to the benchmark without the pandemic. Assuming a less pessimistic scenario, there would be an 18.2% contraction in real exports; and a drastic -22.1% change against the benchmark should recovery be L-shaped.
The superpowers, specifically, China, EU, Japan and the US are likely to have a decrease of about 9% at best and a change that is close to -21% in a pessimistic scenario.
The outlook for global exports at the sectoral level is equally dismal. Aside from the pharmaceutical industry, all other exports are expected to decline.
Of relevance to Malaysia are fossil fuels and petroleum products, both of which will contract by 5.5% and 7.7%, respectively.
It is forecast that computer and electronic products will decline -10.5% in the optimistic scenario and -22.6% in the pessimistic case. Global exports from the manufacturing sector such as electrical equipment and machinery do not have an encouraging outlook either.
Export-led manufacturing in Malaysia is going to be seriously crippled. Those industries that are dependent on the export-oriented industries, be it semiconductors, electrical, metal fasteners, machinery and equipment are all going to be badly hit.
It is those industries in healthcare, medical equipment and products (for instance, rubber gloves) and the pharmaceutical industry that will be able to stay on top of the deluge. It will help to get these industries on their feet and to help them get over their constraints.
Malaysia’s export-oriented model will be severely tested for the next three to six months and it may take a year before reasonable recovery happens.
Dr Shankaran Nambiar is a senior research fellow at the Malaysian Institute of Economic Research. He is author of “Malaysia: At the Edge of Transformation”.
