Bank Negara Malaysia (BNM)’s Annual Release 2019: 2020 – A COVID-19 Induced Recession

3 April 2020

  • The IMF said that the COVID-19 global pandemic has triggered a global recession and the fallout will be much worse than 2008-2009 Global Financial Crisis. Bank Negara Malaysia projects Malaysia’s GDP growth between -2.0% and +0.5% in 2020, much lower than Ministry of Finance’s estimates of 3.2%-4.2% in February 2020 and 4.8% in October last year. SERC’s estimate is -3.0% in 2020 with still considerable downside risks.
  • Consumer spending, to be lifted by cash aids and cash flow cushion measures would be the only primary support to the economy. Weak global demand, dampened business sentiment and sharply reduced tourism activities are expected to push investment and external sector into a deep negative territory, and wipe off the gains from consumption, and causes a recession.
  • While the services sector is severely hit by sluggish retail and tourism-related activities, the manufacturing sector is expected to contract sharply by 8.6% while other key economic sectors also in a contraction mode. As the 28-day MCO (18 March to 14 April) has only allowed selective operation of industries and supply chains in the manufacturing sector, but not the construction and some mining-related sectors, this has led to a major loss of output.
  • Even the MCO is lifted after 14 April, stricter protection procedures and social-distancing measures are expected to continue until the COVID-19 situation stabilises, and hence, we expect a gradual return to normalcy in consumer spending and business activities. Foreign tourists are expected to resume leisure and travelling until sentiment improves and coronavirus global outbreak subsides.
  • The timely rollout of RM250 billion or 17% of GDP Economic Stimulus Packages and monetary and financial measures could ease economic and financial pressures on domestic economy and businesses, but it is likely to avert a recession this year.
  • Weaker domestic demand and lower fuel prices-induced risk of deflation arises as BNM estimates headline inflation to average -1.5% to +0.5% in 2020. We expect Bank Negara Malaysia to cut interest rate by 50 basis points to 2.00% in May 2020 and also more liquidity injection into the banking system.

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