By Ranjit Singh
ECONOMISTS are saying Bank Negara Malaysia’s (BNM) projection for the economy to grow between -2% and 0.5% in 2020 is justified in light of the current circumstances.
In the Covid-19 outbreak, Malaysia has reported more than 3,000 cases of infections and 50 deaths to date.
Professor Nazari Ismail of University Malaya told FocusM that the central bank’s projection was justified but he cautioned that there may be a downward bias to the projection if the virus outbreak worsens.
“I think the projection is justified. In fact, I will not be surprised if it is lower,” he said.
Malaysia would certainly exceed its budget deficit target in 2020 (3.4% in 2019) as it combats the economic fallout from the outbreak.
Nazari foresees the government budget deficit for 2020 will be bigger while unemployment will also rise. The unemployment rate was 3% in 2019 but the figure is expected to spike with many businesses not being able to withstand the demand shocks arising from the pandemic.
Nor Zahidi Alias, chief economist at Malaysia Rating Corporation Bhd, told FocusM that a recession for the country was inevitable in light of the current conditions.
“Given this unprecedented situation, where the global economy is experiencing demand and supply shocks, a recession is a possible scenario,” he said.
He added that it was pivotal for the banking sector to continue to lend in these challenging times to viable sectors of the economy.
“It all depends on the severity and duration of this virus outbreak. What is critical, especially with regards to Malaysia, is the impact on businesses (i.e. SMEs) as some may not be able to withstand the pressure, if the outbreak lasts longer than expected.
“In this regard, we do feel that the private sector (especially financial institutions) has a critical role to play in supporting the government to go through this rough patch. With BNM already flushing liquidity into the system, it is important to ensure that the liquidity is used for lending to support viable businesses,” added Nor Zahidi.
He also said that based on past experience in the US during the Global Financial Crisis (GFC), contraction in lending growth was part of the reason why the economy did not recover earlier even after massive liquidity injections by the Fed.
Dr Afzanizam Abdul Rashid, chief economist at Bank Islam Bhd, told FocusM that the Malaysian economy particularly its export sector would be severely affected by the economic downturn.
“So it’s official now, the BNM is expecting the Malaysian economy to be in recession in 2020 following the Global Health Crisis (GHC). Its baseline GDP forecast of -2% to 0.5% saw a significant decline in the net exports which would likely contract by 27% in 2020. This clearly indicates that such an open economy as Malaysia will be susceptible to volatility in external demand,” said Afzanizam.
He also said the banking sector must continue its lending activities to ensure that the economy continues to function.
“BNM has made the right moves to ensure there is ample liquidity in the banking system. Based on the previous GFC when financing stalled the economy, not lending would force the economy to come to a halt and this would be disastrous,” said Afzanizam. — April 3, 2020
