Penjana will help reduce GDP contraction in 2020 - RHB Research

The National Economic Recovery Plan (Penjana), which features 40 initiatives worth RM35 billion, is expected to help reduce the magnitude of the contraction in the country’s 2020 real gross domestic product (GDP) performance, said RHB Research Institute Sdn Bhd.

Its chief Asean economist Peck Boon Soon said the research house saw upside risks to its GDP forecast for the year following the disclosure of the additional measures in Pemjana, coupled with the RM260 billion Prihatin Economic Stimulus Package 2020 (Prihatin) announced previously.

“It is inevitable that the Malaysian economy would record a negative growth, or a recession as some may call it, in 2020 due to global recession as well as the movement control order (MCO) aimed at containing the spread of Covid-19.

“However, these additional measures will help to reduce the magnitude of the contraction in real GDP growth, and it is unlikely that Malaysia will fall into a depression, as major economies are doing whatever they can to prevent one,” Peck told Bernama.

According to Peck, RHB Research is maintaining its GDP forecast of a four per cent contraction for 2020.

“But given the better-than-expected real GDP growth of 0.7 percent for the first quarter of 2020 (Q1 2020), the additional measures being rolled out to support the economy, as well as the easing of Malaysia 's MCO in early May in line with the gradual re-opening of other major economies, we see upside risks to our forecast,” he said.

In April, Bank Negara Malaysia projected Malaysia’s GDP growth to range between -2.0 per cent and 0.5 per cent for the year. But in May, the bank governor Nor Shamsiah Mohd Yunus said a revised forecast would be announced in the second half of this year once there was more clarity in data and outlook, especially among Malaysia's major trading partners.

On the 2020 Budget deficit forecast, which the government had earlier raised to 4.7 percent of the GDP following the RM260 billion Prihatin package, Peck said the extra RM35 billion in Penjana would probably add another 0.7 percent to the deficit, bringing it to 5.4 percent for this year.

“I believe there is a downside risk to this forecast,” he added.

Commenting on the issuance of RM500 million Sukuk Prihatin in Q3 2020 to fund, among others, micro-enterprises and research grants for infectious diseases, Peck believed the move was meant to provide a better return to retirees who were dependent on savings to keep them going.

“(This is because) the reduction in interest rate has severely affected their income from bank deposits,” he said.

Prime Minister Muhyiddin Yassin, while introducing the Sukuk Prihatin in Penjana, said the issuance of the Islamic bond was aimed to facilitate the people’s participation in supporting post-recovery economic measures.

- Bernama