Private consumption to provide impetus to GDP growth again in 2020

By Ranjit Singh
PRIVATE consumption will once again provide the growth engine for Malaysia’s Gross Domestic Product (or GDP, the total value of goods and services produced in a year) in 2020 although it is expected to come in lower than in 2019.

According to Bank Negara Malaysia (BNM), private consumption which grew by 7.6% in 2019 is expected to grow at 4.2% in 2020. Although private consumption is expected to decline in 2020 compared to 2019, it would be supported by policy measures.

BNM governor Datuk Shamsiah Mohd Yunus said Malaysia is expected to register a GDP growth of between -2% and 0.5% for 2020. In 2019, the GDP growth was 4.3%. The lower growth was mainly attributable to the demand and supply shocks from the Covid-19 outbreak.

Meanwhile, private investments which grew by 0.3% in 2019 are expected to dip by -1.6% in 2020. This is due to weaker demand and business sentiment. However, BNM announced that the government was going ahead with some mega transport projects in 2020, namely the Mass Rapid Transit 2 (MRT2), Light Rail Transit 3 (LRT 3) and the Pan Borneo Highway. The three projects have a capital spend of around RM15 bil which is expected to contribute 1 percentage point to the overall GDP in 2020.

Public consumption is expected to register a 5.9% growth in 2020 against a 2% growth in 2019 as the government increases its consumption of goods and services.

“It is an exceptionally challenging year for the global economy. Confronted with an unprecedented health crisis, global growth is expected to contract. As an open economy, Malaysia will not be spared. Its GDP growth is projected to be between -2.0% and +0.5% in 2020, affected by weak global demand, supply chain disruptions and Covid-19 containment measures both abroad and domestically,” said Shamsiah.

She also said the government’s initiative to mitigate the economic impact of the virus in the form of Pakej Rangsangan Ekonomi 2020 and Pakej Rangsangan Ekonomi Prihatin Rakyat as well as BNM’s financial measures are expected to add 2.8 percentage points to the 2020 GDP growth.

Shamsiah added there remains significant uncertainties surrounding the growth outlook, with both upside and downside risks. Downside risks stem from a prolonged and wider spread of the virus globally and domestically, recurring commodities supply disruptions and tighter financial conditions following heightened volatility in financial markets.

However, there are also upside risks, emanating from potentially larger-than-expected impact from the pro-growth measures, faster normalisation in activity amid pent-up demand and better-than-expected global economy, arising from the various stimulus measures.

The central bank expects the economy to rebound in 2021, in line with the projected global recovery.

Shamsiah reiterated that the financial system was well positioned to sustain shocks from the virus outbreak. The total capital ratio for the banking sector stood at 18.4% in February 2020 compared to 12.6% during the Global Financial Crisis (GFC) of 2008. Excess capital buffers were at RM121 bil compared to RM39 bil during the GFC.

BNM had used the oil price projection of US$25-30 per barrel and crude palm oil prices of between RM2000 and RM2200 in coming up with 2020’s GDP forecast. — April 3, 2020

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