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Economy

Malaysia should brace for negative growth in 2020, central bank says

COVID-19 and low commodity prices will hit GDP hard before turnaround

Firefighters spray disinfectant on a street in Kuala Lumpur on March 31.   © Reuters

KUALA LUMPUR -- Malaysia's central bank predicts the economy could shrink up to 2% this year due to the coronavirus outbreak in the Southeast Asian country, which has infected more than 3,100 people so far -- the most confirmed cases in the region.

In an economic monetary review issued Friday, the bank suggests Malaysia's gross domestic product might hover between 0.5% to negative 2.0%, which would be the country's worst performance since 2009 in the wake of the global financial crisis. Since the negative 1.5% contraction recorded in 2009, the economy had been expanding comfortably at above 4.4% annually, thanks to heavy inflows of investments and then-high commodity prices.

"The domestic economy is also facing the economic effects from the necessary actions taken to contain COVID-19 locally and continued supply disruptions in the commodities sector," the central bank said, adding that the shocks, particularly significant economic repercussions induced by the unprecedented health crisis, are expected to weigh significantly on Malaysia's growth in 2020.

Actions taken to restrict travel by countries, including Malaysia, will have a sizable effect on Malaysia's tourism sector, which accounts for 11.8% of Malaysia's GDP.

Airport passenger traffic declined by 8.2% in the first two months of the year, just as infections began to escalate and economies began to enact precautionary measures, such as travel bans and quarantines. Since then, these measures have become more widespread globally -- which the bank expects to adversely affect spending in tourism-related sectors namely hotels, retail trade, food and beverage, and transport services.

As of Thursday, some 3,116 COVID-19 cases had been recorded in the country, with 50 deaths. Malaysia has been under lockdown for over two weeks, with borders closed and citizens' movement restricted.

Apart from the health crisis, the central bank said the economy is expected to be affected by the sharp decline and volatile shifts in crude oil prices, which are at a 20-year low. Prolonged low global oil prices will affect the income, employment and investment prospects in mining-related sectors.

The bank said other major commodity prices are also projected to be lower, including liquefied natural gas. LNG is forecast to be hit by lower demand from Japan and China on the restarting of nuclear plants and production disruptions due to COVID-19, respectively.

The government led by newly installed Prime Minister Muhyiddin Yassin has unveiled two stimulus packages totaling 250 billion ringgit ($58 billion), to help Malaysians cope with the economic downturn.

The central bank said cash handouts and incentives announced in the stimulus packages will mitigate the effect of COVID-19 on household income and spending.

"Importantly, the broad-based policy support would cushion the impact of COVID-19 on household spending and enable a gradual recovery as labor market conditions eventually stabilize following the projected gradual improvement in global and domestic economic activities," the bank said.

Meanwhile, the central bank said the economy was expected to improve toward year-end and next year. The country is seen benefiting from the projected improvement in global demand, which will fuel growth in the export-oriented sectors.

"As risks from the pandemic subside, consumer sentiments can also be expected to gradually improve when travel restrictions are eased and tourism activities resume. In addition, production in the mining and agriculture sectors are projected to improve in the second half of the year amid the expected recovery from the supply disruptions," it added.

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