Economists have lower projections for Malaysia’s development in 2021 as a result of Covid lockdown

A woman can be seen in Kuala Lumpur with a Malaysia flag as a background.

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SINGAPORE – Several economists have cut their growth forecasts for Malaysia for 2021 after the country announced stricter measures to contain a recent surge in Covid-19 cases.

The Malaysian government imposed a nationwide interstate travel ban and a ban on six states and territories for two weeks from Wednesday. The country’s king also declared a state of emergency, which will last until August 1 or earlier if Covid cases are effectively lowered.

Here are some economists who have cut their forecasts for Malaysia:

  • Capital Economics, a consulting firm, said the Southeast Asian country will grow 7% this year, up from its previous forecast of 10%;
  • The Singaporean bank UOB downgraded its forecast from 6% to 5%;
  • The Japanese bank Mizuho lowered its forecast from 6.7% to 5.9%;
  • Fitch Solutions has lowered its forecast from 11.5% to 10%.

Malaysia was one of the worst performing economies in Asia over the past year. The International Monetary Fund announced in October that the Malaysian economy would contract 6% in 2020, up from 4.3% a year earlier.

Alex Holmes, Asian economist with Capital Economics, said in a report Tuesday that Malaysia’s recent lockdown “is likely to hit the economy hard”. He pointed out that the six restricted states and areas – including the capital Kuala Lumper and Malaysia’s richest state, Selangor – account for 57% of the population and 65% of the gross domestic product.

The lockdown – known locally as a movement control order or MCO – includes banning all social gatherings and dine-ins, closing schools, and opening only “essential” businesses.

Most of the rest of the country has been made less stringent, with most companies allowed to operate but prohibited activities involving large gatherings.

UOB economists said in a Wednesday report that their growth forecast downgrade assumed the restrictions would be extended for another four weeks through the end of February. However, the macroeconomic impact of the latest measures is likely to be “less severe” than it was last year when the whole country was locked down, the economists added.

‘Blessing in disguise’

The state of emergency declared on Tuesday shook the country’s stocks and currency.

But the move will remove the short-term political uncertainty the country has struggled with over the past year – and that could be “a blessing in disguise” for the Malaysian ringgit, said Lavanya Venkateswaran, a market economist at Mizuho.

The currency was down 0.5% against the US dollar in response to Tuesday’s state of emergency announcement. Since then it has strengthened against the greenback and has more than made up for these losses.

Malaysian Prime Minister Muhyiddin Yassin said there would be no curfew in a state of emergency and that the government and judicial system would continue to function. But parliament will be suspended and elections cannot be held, he said.

Muhyiddin came to power in March last year and has been increasingly called on by his ruling coalition to resign and make way for an early election.

The emergency statement “removes unnecessary and self-inflicted political uncertainties that could jeopardize the political response to the COVID resurgence,” Venkateswaran wrote in a report on Tuesday.

“Instead a stable political platform to (the) An emergency pandemic is ultimately positive in getting the economy going again. “ She said.

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