According to Fitch Group’s research, Malaysia economic recovery in the second half of this year is expected to be gradual before bouncing back on its feet next year after having experienced the its “worst recession” recently.

Fitch Solutions Country Risk and Industry Research was explaining why it had decided to revise its forecast of real GDP or economic growth for Malaysia at -4.5 percent for 2020, down from the previous figures of -2.8 percent. It also revised its 2021 forecast for Malaysia’s real GDP from the previous 5.7 percent to a more positive 6.3 percent.

Key reasons for the Fitch research unit’s revision of the 2020 figures include the 17.1 percent contraction of Malaysia’s real GDP in the second quarter of 2020 or from April to June as compared to the year before due to movement control order (MCO) measures, which the unit described as the “worst contraction in Malaysia’s history”.

It also said the -4.5 percent outlook for Malaysia’s real GDP is due to forecasted weaker domestic and external demand in the second half of 2020 in line with expected continued restrictions on travel and movement.

Touching on the expected greater contraction in private spending by 2.0 percent instead of the forecasted contraction of 0.8 percent previously, the Fitch unit said in its report on its outlook for Malaysia: “The severe downturn in Q2020, as well as continuing restrictions on gatherings and people’s movements, will continue to weigh on private consumption as disposable incomes shrink and malls and entertainment venues see less traffic. 

“Furthermore, travel restrictions are likely to remain largely in place, as negotiations to re-open travel are likely to be limited to essential business travel in 2020, with governments in Asia mostly taking a cautious approach towards the matter. 

“Malaysia will therefore be still unable to count on a return of tourism to aid the recovery, and this is a severe limiting factor, since tourism is a key part of the economy, accounting for 11.5 per cent of GDP (in both direct and indirect impact) in 2019,” it said.

Domestically, the research unit predicts slower recovery for gross fixed capital formation or investments as local businesses will remain cash strapped throughout this year due to cash flow issues, while noting that government consumption is unlikely to pick up the slack in domestic demand due to fiscal constraints and a relatively modest spending package announced in March.

Malaysia’s economic recovery for the second half of this year is also expected to be slower, due to the expected weaker economic recovery in its key trading partners, the Fitch unit said.

But the Fitch Solutions Country Risk and Industry Research also expected economic activity in Malaysia to pick up again over the second half of 2020, in line with the relaxing of MCO measures that are expected to be further eased over the coming months.

Source: Malay Mail

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