世界发展银行-Malaysia-Economic-Monitor,-June-2020-_-Surviving-the-Storm_100页_4mb

Summary of Malaysia Economic Monitor - June 2020

Core Content

The Malaysia Economic Monitor (MEM) for June 2020, titled Surviving the Storm, provides an in-depth analysis of the economic impact of the COVID-19 pandemic on Malaysia and outlines policy recommendations for both the short and long-term recovery.

Key Economic Developments

• Economic Impact of the Pandemic:
  The COVID-19 pandemic triggered a global economic shock, leading to a sharp contraction in Malaysia's economy in 2020.

  • GDP Growth: Slowed to 0.7% in Q1 2020, a significant deceleration from 3.6% in Q4 2019.
  • Q2 2020: Projected to experience a pronounced output contraction of around 10%, due to the Movement Control Order (MCO).
  • Recovery: Partial recovery is expected in the second half of 2020 as mobility restrictions are eased.

• Private Consumption:

  • Growth moderated to 6.7% in Q1 2020, down from 8.1% in Q4 2019.
  • MCO significantly impacted retail, travel, leisure, and durable goods consumption.
  • Online platforms and delivery services helped to mitigate the decline in private consumption.

• Investment:

  • Aggregate investment contracted for the fifth consecutive quarter.
  • Private investment declined due to pandemic uncertainty and government policy changes.
  • Public investment also saw negative growth for the tenth consecutive quarter.

• Exports and Imports:

  • Exports fell by -7.1% in Q1 2020, the largest decline since 2009.
  • Imports declined by -2.5%, mainly due to a drop in capital goods imports.
  • Current account surplus narrowed to 2.9% of GDP.

• Inflation:

  • Headline inflation was 0.9% in Q1 2020, mainly due to falling fuel prices.
  • Negative inflation occurred in March and April, due to declining global oil prices.

• Labor Market:

  • Unemployment rose to 5% in April 2020, the highest since data collection began.
  • Employment growth slowed to 1.6% over the quarter, compared to 2.1% in January and February.

• Financial Sector:

  • Bank Negara Malaysia (BNM) lowered the Overnight Policy Rate (OPR) to 2% and Statutory Reserve Requirement (SRR) to 2%.
  • Financial sector resilience was maintained, with ROE at 11.1% and ROA at 1.3% in Q1 2020.
  • Non-resident outflows increased in February and March, affecting domestic equity and bond markets.

Fiscal Policy and Stimulus Packages

• Prihatin Rakyat Package:

  • Total cost: RM260 billion (17% of GDP).
  • Direct fiscal injection: RM35 billion (2.3% of GDP).
  • Mainly focused on one-off cash assistance programs.

• Penjana Plan:

  • Additional RM10 billion in government expenditure.
  • Aimed at extending wage subsidies, upskilling, and re-skilling programs.
  • Reflects the limited fiscal space available to the government.

• Fiscal Deficit:

  • Expected to widen in 2020 due to increased spending and revenue declines.
  • World Bank estimates suggest a fiscal deficit of up to 7% of GDP if non-core spending is not reduced or additional non-tax revenue is not secured.

Economic Outlook

• Global Economic Contraction:

  • Projected to be the deepest recession in 80 years.
  • East Asia and Pacific (EAP) region growth is expected to slow sharply, to its lowest since 1967.

• Malaysia's GDP Projection:

  • Expected to decline by 3.1% in 2020, compared to 4.3% in 2019.
  • Q2 2020: Output contraction of ~10% due to MCO.
  • Q3 and Q4 2020: Partial recovery expected as lockdown measures ease.

• Private Sector Recovery:

  • Likely to recover modestly as social interaction restrictions are lifted.
  • Still below pre-crisis levels in the foreseeable future.

• External Sector Recovery:

  • Expected to recover gradually in H2 2020.
  • Global trade normalization will drive recovery in 2021.

• Inflation Outlook:

  • Expected to remain muted, averaging close to 0% in 2020.
  • Downward pressure from falling oil prices and weak demand.

Policy Recommendations

Short and Medium Term

• Prioritize fiscal strategy to create additional policy space.
• Re-allocate expenditures to priority areas.
• Identify new sources of non-tax revenue.
• Improve the efficiency of stimulus packages.
• Enhance financial assistance for vulnerable households and firms.
• Support recovery efforts through Penjana plan initiatives.
• Focus on re-skilling and upskilling to reinvigorate private investment.

Long Term

• Develop an enhanced social protection system to support shared prosperity.
• Improve the adequacy and coverage of long-term savings arrangements.
• Leverage the 'new normal' to accelerate structural reforms.
• Strengthen fiscal buffers and spending efficiency.
• Promote foreign and domestic private investment.
• Advance digitalization to adapt to the changing world of work.

Special Topic: Social Protection System

• Need for Enhancement:

  • The current social protection system provides limited support to vulnerable populations.
  • BSH/BR1M has high coverage but lacks explicit objectives.
  • Productive employment initiatives are still nascent.
  • Uncoordinated delivery reduces equity and efficiency.

• Policy Recommendations:

  • Improve financial protection for those already in the system.
  • Expand coverage to reach nearly 40% of the labor force.
  • Coordinate delivery mechanisms to enhance equity and efficiency.
  • Support digital transformation to adapt to the evolving labor market.

Conclusion

The Malaysia Economic Monitor highlights the severe economic impact of the pandemic and outlines a comprehensive policy framework for recovery and long-term development. The social protection system is identified as a key area for reform, especially as disruptive technologies and changing demographics reshape the labor market. The report emphasizes the need for coordinated and efficient policies to support vulnerable households and businesses, and to prepare for a sustainable recovery in the post-pandemic 'new normal'.