Malaysia’s GDP is Projected to Contract by 5.5%?

The Malaysian Institute of Economic Research (MIER) has revised downward its own worst case scenario for GDP to -5.5% in 2020 (Starbiz, Oct 27). This is impacted by the large negative 17.4% growth in Q2. Surge in Covid-19 cases, CMCO and no new measures from Government to mitigate the situation have influenced the new projection. IMF sees negative 6% growth.

Many are expecting real GDP growth to be positive in 2021. MIER anticipates it at 5.2-6.7%. That seems again on assumption of launch of 12^th Malaysian Plan, flattening the pandemic curve, a vaccine in sight and no new political turmoil.’

 

Source: https://www.mier.org.my

 

Meanwhile, Malaysia’s exports grew 13.6% to RM88.9 billion in September, year-on-year (according toEdgeMarkets.com). This is well above Bloomberg’s projection of 2% growth. Trade surplus was RM22 billion in September, a 149% growth from a year earlier according to Department of Statistics, Malaysia. Electrical, electronics, gloves, iron and steel, palm oil contributed to the exports. However, export surges will remain bumpy until solutions are found for Covid-19.

Bank Negara’s cut of OPR by another 25 basis points (to 1.5%) on November 3 is being anticipated. With CMCO extended to November 9, the rate cut is necessary. It is certainly better to have a 3-month moratorium extension than a rate cut. Why? Rate cuts don’t help businesses that are dying or dead. With companies having only 2 months reserves, more than 50,000 small businesses will close by year end and millions face unemployment.

 

 

This is where a truly brilliant MoF will craft a Supply Bill to address:

 

·       Retail small businesses;

·       Services sector (which forms more than 50% of GDP);

·       Aviation sector;

·       Tourism and hotels;

·       Restaurants; and

·       Manufacturing

 

He will then fund these schemes with new taxation on the rich – individuals/corporate; speculative transactions – forex; and “super” profits for those industries benefiting from Covid-19. But can he convince his Government and the opposition to do so?

 

References:

1. MIER revises GDP growth as virus surges, Starbiz, 27 October 2020

2. The EdgeMalaysia, CEO Morning Brief, 29 October 2020