KUALA LUMPUR: Following a sharper than expected contraction in the second quarter of 2020 (2Q20), the World Bank has lowered Malaysia’s economic growth forecast this year to a contraction of 4.9%, down from an early estimate of -3.1%
In a statement today, it said the change in forecast reflected the heightened uncertainty surrounding the start and speed of global economic recovery, which would weigh on investment decisions and external demand.
It added that the rising unemployment rate and weaknesses in the labour market would continue to weigh on private consumption.
Following the economy-wide temporary closures and reduced business operations, the World Bank said the labour market was significantly impacted, with unemployment rising to 5.1% in 2Q20, its highest rate in 30 years.
Labour force participation declined to 68.1% in 2Q from 68.8% in 1Q, and many workers faced reduced hours and pay.
“Reflecting these developments, most demand components such as net exports, private consumption and private investment are expected to contract in 2020,” it said following the launch of its economic update report for East Asia and the Pacific.
Malaysia’s economy was severely affected by the Covid-19 pandemic, leading to a double-digit contraction of 17.1% in 2Q20, mainly driven by a decline in domestic demand due to the imposition of the movement control order to stem its spread, as well as weak external conditions.
Government expenditure is expected to increase, mainly due to stimulus spending, noted the bank.