Malaysia sees possible contraction as growth forecasts slashed

[KUALA LUMPUR] Malaysia's economy could contract this year as the country struggles with a month-long coronavirus lockdown and a steep fall in commodity prices.

Gross domestic product (GDP) could shrink as much as 2 per cent this year or grow as much as 0.5 per cent, Malaysia's central bank said Friday in its annual Economic and Monetary Review. The global pandemic has hit the country's tourism sector hard and is set to dampen private consumption and investment, Bank Negara Malaysia said in the report, while volatile crude-oil prices will affect the country's revenues.

"Should the need arise, the bank can utilise its policy levers as appropriate to cushion the impact of the economic downturn," Governor Nor Shamsiah Mohd Yunus said in the report. "Monetary policy conditions remain guided by the evolving downside risks to growth amid price stability."

The looming contraction comes as Malaysia's neighbours also are seeing this year's growth expectations wiped out. Singapore says GDP could shrink by as much as 4 per cent this year, while Thailand's central bank expects the economy to contract 5.3 per cent. Indonesia, while still forecasting some growth, warned that a contraction isn't out of the question.

LOCKED DOWN

Bank Negara Malaysia last month cut its policy rate 25 basis points to 2.50 per cent and slashed banks' reserve requirement ratio by 100 basis points to 2 per cent to bolster the economy amid the downturn. The government has announced a series of stimulus measures amounting to 250 billion ringgit (S$82.35 billion), including cash handouts and six-month bank loan deferrals.

Prime Minister Muhyiddin Yassin imposed a nationwide lockdown March 18 as Malaysia contends with the largest number of virus cases in South-east Asia. Schools, shops and some factories were forced to close and other rules were imposed, with the restrictions liable to be extended beyond the current April 14 limit.

The pandemic has added to Malaysia's woes after the economy grew 4.3 per cent last year, its slowest pace since 2009.

Domestic growth is set to pick up toward the end of this year and normalise in 2021, supported by a recovery in global demand and continued policy measures, the central bank said in the report. The forecast also envisions renewed growth in export-oriented sectors, improved consumer sentiment and a revival of tourism.

"For now, difficult choices must be made for our nation to come out stronger on the other side," Nor Shamsiah said in the report.

BLOOMBERG