KUALA LUMPUR, Sept 29 — 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 per cent, down from an early estimate of -3.1 per cent.
In a statement today, the World Bank said the change in the forecast reflected the heightened uncertainty surrounding the start and speed of global economic recovery, which would weigh on investment decisions and external demand.
In addition, the elevated unemployment rate and other weaknesses in the labor market would continue to weigh on private consumption, it added.
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 per cent in the second quarter of 2020, its highest rate in thirty years.
Labour force participation declined to 68.1 per cent in the second quarter from 68.8 per cent in the first quarter 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,” the World Bank said following the launch of its Economic Update report for East Asia and the Pacific.
Malaysia’s economy is severely affected by the COVID-19 pandemic, leading to a double-digit contraction of 17.1 percent in the second quarter of 2020, 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.
Meanwhile, poverty at the US$5.50 per day (2011 Purchasing Power Parity dollars) upper-middle-income poverty line is projected to increase slightly to 0.9 per cent from 0.8 per cent in 2020.
The World Bank said the increase was due to higher unemployment, reduced work hours, and slower business for small and medium enterprises (SMEs), although these contractionary effects were offset to some degree by government relief and recovery measures that cushion the impacts on private consumption.
“The US$5.50 per day 2011 PPP poverty rate is projected to decline to 0.6 per cent in 2021 and 0.5 per cent in 2022.