Malaysia is set to slip into an economic recession in the following four to six months, the Department of Statistics Malaysia (DOSM) has said in its Malaysian Economic Statistics Review (MESR).
According to the report, this prediction was made based on the latest leading indicators, such as the country’s marginal gross domestic product (GDP) growth of 0.7% in the first quarter of 2020 (Q1 2020). The figure is significantly lower than the 3.9% to 4.2% expansion previously expected; in fact, it is the lowest since the third quarter of 2009, after the global financial crisis between mid-2007 to early 2009. This is compounded by estimated losses of RM22.8 billion in economic output during Q1 2020 due to the movement control order (MCO) enforced to combat the spread of Covid-19.
“The outbreak has caused the temporary closure of businesses, where they faced the risk of immediate cash flow constraints as their earnings decreased,” noted the report, stating that the tourism industry was the first to be impacted. This was subsequently followed by the accommodations and aviation industry.
The real estate industry, too, was brought to a halt, as was the retail segment as people withhold from purchasing during this challenging period. The report also predicted that this trend is likely to persist throughout the first half of 2020, given Malaysians’ uncertainty and lack of confidence in the nation’s situation.
The report further commented that dynamic measures are necessary to help the nation transform its current economic structure. It is currently heavily dependent on commodities-based industries and low value-added industries that hire low- and semi-skilled workers with low pay.
“New ways of doing business and diversifying the economy is highly required by embracing technological advances, such as the Industrial Revolution 4.0 and digitalisation of business ecosystem,” said the report. This is evident as more businesses have leveraged on digital platforms to sustain themselves during the MCO, and e-commerce will become the new norm. The adoption of new technologies will also create a more conducive and sustainable labour market.
Meanwhile, the chief economist of IHS Markit Asia Pacific, Rajiv Biswas, also shared a similar forecast for Malaysia’s economy. “First quarter GDP contracted on a quarter-on quarter basis, and 2Q20 GDP is also expected to show a sharp contraction due to the impact of the protracted lockdown. This is expected to push the Malaysian economy into a recession for the 2020 calendar year,” he said.
However, Biswas believes that the economy will gradually improve in the second half of the year as domestic industrial production and consumption recover along with the easing of lockdown restrictions – domestically and globally.