June 18, 2024

New Malaysia Times

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Emerging markets growth to contract by 3.5%, oil price to see gradual recovery

trade performance

KUALA LUMPUR, April 28 – The economic costs of COVID-19 crisis amid the near shutdown of the global economy, excluding China, are accumulating rapidly, with emerging market economies projected to record a growth of -3.5 per cent in 2020, down from a forecast of 3.2 per cent before the outbreak.

China’s economy is forecast to grow by one per cent in 2020.

In a statement, Moody’s Investors Service said it expects G-20 advanced economies, as a group, to contract by 5.8 per cent in 2020. Even with a gradual recovery, 2021 real growth domestic product (GDP) in most advanced economies is expected to be below pre-coronavirus levels.

“The contraction in economic activity in the second quarter will be severe and the overall recovery in the second half of the year will be gradual.

“Recovery is also likely to be uneven across sectors as fear of infection will likely alter consumer behaviour even after restrictions on business activity and mobility are lifted,” says Moody’s vice-president Madhavi Bokil.

She said consumption in economic activities that require a high degree of human contact such as dining out, going to movie theaters, flying and using mass transit, is unlikely to fully normalise until infection rates drop to very low levels or a vaccine or an effective treatment for the virus is available.

“Many businesses will struggle to stay afloat in these conditions, and eventually some will close regardless of policy support to the economy,” she opined.

Oil demand will gradually improve in the second half of the year in tandem with a relaxation of social distancing measures. However, this pickup in demand, combined with storage limitations, implies that inventory drawdowns will be slow.

As a result, Moody’s expects oil prices to remain low, with Brent averaging US$35 per barrel (US$1 = RM4.35) and West Texas intermediate (WTI) spot at US$30 per barrel for this year.

Madhavi said Brent and WTI prices are expected to move up to an average of US$45 and $40 per barrel, respectively, in 2021, owing to a gradual improvement in economic activity.

Longer or repeated shutdowns would severely harm the real economy, with the potential to trigger a financial crisis. In such a scenario, the economic shock will quickly escalate into a deep financial crisis far worse than the experience of the global financial crisis, in scale and scope.

Rising inequality, as the weakest sections bear the brunt of the shock, could fuel social discontent and political unrest, she added.