Economists see GDP growth falling below 2%

Normally bustling areas of Kuala Lumpur are now empty due to the movement control order imposed to curb the spread of Covid-19.

PETALING JAYA: Two Malaysian-based economists have warned that the country’s economic growth for this year may fall below the 2% predicted by ratings agencies and other financial analysts.

Referring to a recent Bloomberg report quoting the analysts, Carmelo Ferlito of Institute for Democracy and Economic Affairs and Barjoyai Bardai of Universiti Tun Abdul Razak said the projection of a 2% growth might have been too optimistic.

Bloomberg’s sources took into account last month’s abrupt change of government, the crash in oil prices and the Covid-19 outbreak.

Ferlito said the impact of the virus was hard to estimate and the 2% growth projection could become outdated in a week.

Carmelo Ferlito

“Things could very well become worse,” he told FMT, adding that he believed 2% growth would not be achievable if the government’s movement control order (MCO) were to be extended.

“As long as we are unable to predict the duration of the phenomenon and to which level an economic lockdown will be necessary, then I think we should be very prudent in giving numbers,” he said.

He noted that the travel and hospitality sectors were already taking a beating and said small and medium enterprises (SMEs) could also be in trouble as they might not have enough resources to withstand a prolonged MCO.

“We may see job losses and company closures, but the extent will depend very much on the duration of the order.”

He said retailers of food and pharmaceutical products were probably doing well because of high demand.

He also said it was difficult to estimate the economic damage and implement sound recovery plans until Covid-19 was no longer a threat.

He urged the government to give tax cuts to those in the supply chain in order to revive production once the threat was over.

“It may also be time to bring back the goods and services tax to boost the government’s coffers and really target cash aid.”

Barjoyai Bardai

Barjoyai said the MCO would have a worse effect than would a normal recession since it had stopped the economy from operating naturally.

“If the MCO is extended to April, then we will face a risk of higher unemployment as the SMEs will just collapse,” he said.

“Microbusinesses will be wiped out and even the self-employed will be badly affected.”

He said the government would have to opt for an expansionary budget to stimulate the economy in 2021, even at the risk of increasing the budget deficit level to 4% of the GDP.

Barjoyai nevertheless said he was positive about the Malaysian economy owing to its strong fundamentals and the country’s export potential, advanced industries, low inflation and interests rates and manageable unemployment rate.

“There are concerns over the strength of the ringgit and crude oil prices, but I believe these will recover in time,” he said.

“I think the economic problems brought by Covid-19 may actually be good for the country in the long run because it is a wake-up call against conducting business as usual in the belief that oil will always save us, that we can maintain our current productivity rates or that the government must subsidise everything.”