THE Socio-Economic Research Centre (SERC) has projected Malaysia’s economy to contract by 4% for 2020 on the back of a prolonged battle against Covid-19, before a rebound of 5% next year.

SERC executive director Lee Heng Guie said in a quarterly economic briefing today that the gross domestic product (GDP) growth projection is on a base case scenario where supply chains are disrupted and domestic demand is dampened due to the long period taken to contain the pandemic.

Other factors supporting the forecast are financial turbulence and stimulus measures, which could cushion the magnitude of the impact.

“My base case now has been revised to -4% from -3%.

“For the projected outlook for next year, I am looking at 5%,” he said in a video conference briefing.

“In the worst case (scenario), assuming that a very wide scale enhanced movement control order or targeted enhanced movement control order is imposed, the economy can decline 4.5%-5% and next year the growth will be about 2%,” he added when speaking about the downside forecast.

He said a deeper global recession, deepening impact of a prolonged Covid-19 outbreak, sharp correction in the equities and commodities markets, and ineffective financial stimulus are the downside risk factors.

On the upside, he noted, the economy could see a smaller contraction of 1.5% for 2020 before staging a rebound of 6.5% in the coming year.

This is possible, he said, if there is stability and recovery in global growth, if the virus is contained within the first half 2020 and a vaccine is found next year, as well as financial stimulus that can dampen the impact of the pandemic.

Lee noted that the worst is now behind us after the economy contracted by 17.1% in the second quarter.

He added that the economy is now moving from stabilisation to recovery and green shoots are now emerging, although unevenly across sectors.

The month-on-month decline in GDP has also been narrowing since April (-28.6% year-on-year) and May (-19.5%) before narrowing sharply to -3.2% in June following the implementation of the conditional movement control order (MCO) and recovery MCO.

Supportive and accommodative financial policy, he said, is still required to support economic growth.

As for the outlook, the pause in economic activity in 2020 will normalise next year, albeit with some permanent loss in output.

The services and tourism sector will be revitalised as tourist arrivals resume gradually, while exports will rebound when global trade picks up.

Meanwhile, Lee said the uncertainty over the future of the virus and availability of vaccines, a longer period of recovery for the domestic sector and slow recovery in the job market are some potential risk factors. – October 6, 2020.