IMF sees Malaysia GDP to contract 3.8% in 2020

THE International Monetary Fund (IMF) has revised its gross domestic product (GDP) forecast for Malaysia to a 3.8% contraction from a previous 1.7% on the back of a stronger-than-expected negative impact on the economy due to Covid-19.

The fund, in its June 2020 World Economic Outlook Update, also revised downwards its previous forecast for 2021 to 6.3% from 9% in its April report.

The IMF labelled the Covid-19 pandemic as “a crisis like no other,” with global growth projected to contract by 4.9% in 2020. This is attributed to the Covid-19 pandemic having a more negative impact on activity in the first half of 2020 than anticipated, with recovery projected to be more gradual than previously forecast.

Still, the fund recommends that all countries, including those that have seemingly passed peaks in infections, to ensure their healthcare systems are adequately resourced.

“The international community must vastly step up its support of national initiatives, including through financial assistance to countries with limited healthcare capacity and channelling of funding for vaccine production as trials advance, so that adequate, affordable doses are quickly available to all countries,” the IMF said, stressing the importance of multilateral cooperation.

The IMF also noted that consumption and services output have dropped markedly, when this is generally not the case in most recessions.

This is due to a unique combination of factors, namely voluntary social distancing, lockdowns to slow the transmission of Covid-19 and allow healthcare systems to handle rapidly rising caseloads, steep income losses, and weaker consumer confidence.

“Firms have also cut back on investment when faced with precipitous demand declines, supply interruptions, and uncertain future earnings prospects. Thus, there is a broad-based aggregate demand shock, compounding near-term supply disruptions due to lockdowns,” said the IMF.

At the same time, the impact to the labour market has seen a global decline in work hours, with the decline in 2Q20 “likely to be equivalent to more than 300 million full-time jobs,” according to the fund.

“The hit to the labour market has been particularly acute for low-skilled workers who do not have the option of working from home. Income losses also appear to have been uneven across genders, with women among lower-income groups bearing a larger brunt of the impact in some countries,” said the IMF.

“Of the approximately 2 billion informally employed workers worldwide, the International Labour Organisation estimates close to 80% have been significantly affected,” added the fund. – June 25, 2020

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