PETALING JAYA: Bank Negara Malaysia (BNM) has revised its 2020 gross domestic product (GDP) forecast to -3.5% to -5.5% after announcing a 17.1% contraction in the Q2’20 GDP.
Governor Datuk Nor Shamsiah Mohd Yunus attributed the upset in the economic performance to the changes in its underlying assumptions on world growth and the longer than expected implementation of the movement control order (MCO) to contain the pandemic.
“The pandemic has had a larger than anticipated adverse effect on economic activity in the first half of this year and the recovery is projected to be more gradual than previously forecast,” she said at BNM’s online media briefing today.
Shamsiah illustrated that the quarter saw most countries around the globe in a lockdown, subsequently, IMF has revised the global growth forecast from -3% in April to -4.9% in June 2020 as the depth of the downturn became more apparent.
In addition, she also noted that in its previous economic and monetary review in April, BNM had assumed the MCO would last four weeks, however the containment measures lasted for an additional three weeks followed by the implementation of the conditional and recovery MCO.
“While this was key in containing the outbreak, the extension of the strictly enforced mobility restriction that resulted in a larger than anticipated impact on economic output as observed in the second quarter actual economic performance,” explained the governor.
Against a backdrop of sharp deterioration in economic activities in April, the central bank has projected Malaysia’s GDP to register a negative growth of -3.5% to -5.5% for 2020, a decline from its previous forecast of -2% to +0.5%.
In the first half of the year, growth contracted by 8.3%.
Moving forward, BNM expects the Malaysian economy is expected to recover gradually in the second half of 2020 as the economy progressively re-opens and external demand improves.
It highlighted that economic activity has resumed since the economy began to reopen in early May 2020.
Consequently, growth is expected to have troughed in the second quarter of 2020, with a gradual recovery in the second half.
The central bank elaborated that the outlook is underpinned by the rebound of key indicators such as wholesale and retail trade, industrial production, gross exports, and electricity generation.
Shamsiah volunteered that indicators have reported an improvement, such as the industrial production index which rebounded from a low of 76.5 points in April to 114.8 points in June and credit card spending which hit a low of RM6.4 billion and recovered to RM10.7 billion in June.
“In our assessment, the worst was behind us in April with the economy poised for a recovery,” she said.
“For 2021, the growth of Malaysian economy is projected to rebound to between 5.5% to 8% and the positive turnaround will be underpinned by an upturn in both external and domestic demand, supported by a more favourable operating environment.”
At the same time, BNM also highlighted that the IMF expected global growth to rebound to 5.4% in 2021, and Malaysia is anticipated to benefit from such growth through higher trade activity and positive spillover to domestic demand.
With that, it projected all economic sectors will contribute positively next year, particularly the manufacturing sector that will benefit from higher production activity arising from a stronger external demand as well as the commencement of expanded production facilities, especially, for semiconductors, test equipment and medical devices in the electric & electronics sector.