The COVID-19 crisis has severely impacted Malaysia¡¯s economy, with growth dramatically declining during the first quarter of 2020.
- Overall growth slowed to 0.7%, as a result of movement control orders to curb the spread of the pandemic.
- Private consumption moderated in the first quarter, with heavy impacts seen in retail, travel, leisure and recreational spending, as well as spending on durable goods.
- Investment contracted for the fifth consecutive quarter, with declines in both private and public investment.
- Exports have continued to see negative growth amid plunging external demand.
In 2020, Malaysia¡¯s GDP is projected to decline by 3.1 percent this year from 4.3% in 2019, mainly reflecting a sharp slowdown in economic activity during the first half of 2020.
- While household expenditure and business investment spending are expected to improve gradually, they are likely to remain subdued throughout the year due to high levels of uncertainty.
- The recovery of the external sector is likely to be relatively slow, consistent with the projected path of recovery in global trade.
- Consumer price inflation will likely be muted over the near term due to the marked decline in global oil prices and overall demand since March.
The crisis has underscored the need to better protect individuals and households in Malaysia, during the recovery period and beyond. To that end, key hurdles in the country¡¯s social protection framework must be addressed.
- The country¡¯s social protection system faces challenges from the changing nature of work and a rapidly aging population.
- Social assistance programs in Malaysia have so far only had a modest impact on poverty reduction and promoting productive employment.
- Malaysia¡¯s labor market programs are impeded by a significant degree of duplication and fragmentation.
- Alongside cash-based social assistance, Malaysia will need to address the increasing demand for non-cash support services, especially for the elderly.
- Coverage and adequacy of long-term savings arrangements need to be improved as in the short term, the COVID-19 crisis may increase the vulnerability of older persons while temporarily reducing their savings for retirement.
To survive the storm of the COVID-19 crisis and thrive in the new normal, Malaysia will require an enhanced social protection system that caters to its most vulnerable groups.
- In the near term, government efforts focus on supporting relief and recovery efforts by deepening social assistance for lower income households, improving the delivery of social protection programs, and promoting job recovery.
- Further rounds of cash transfers are important help the most vulnerable groups mitigate financial strains as well as support domestic consumption and human capital development.
- Over the medium and long term, support for lower-income groups can be gradually expanded to ensure that Malaysia¡¯s social protection system provides a minimum level of protection to all households and individuals in need.