Global economy expected to recover in H2 2020 as lockdowns ease

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© Kanok Sulaiman/ 123RF

13 July, KUALA LUMPUR – The global economy is expected to recover in the second half of 2020 (H2 2020) as more countries began to ease restrictions and lockdowns that were in place to control the spread of COVID-19, said MIDF Research.

The research firm said economic activities have started to increase worldwide, recovering from the sharp contraction in April 2020 following the COVID-19-triggered lockdowns.

“However, the balance of risk for the global economy remains on the downside as the recovery would take time to return to the pre-COVID-19 levels,” it said in its Weekly Money Review note for the week ended July 10, 2020.

It highlighted that downside risks to growth could come from another wave of coronavirus outbreak, escalation of geo-political risks and prolonged weakness in global demand.

Meanwhile, the research house noted that the International Monetary Fund (IMF) has slashed its global growth projection as the impact from the COVID-19 lockdowns on the global economy had been more severe that it had initially expected.

The global economy is expected to fall by 3.9 per cent in 2020 — worse than the Global Financial Crisis in 2008-2009.

The loss in global output is estimated to be more than US$12 trillion due to disruptions to the global supply chain and weak aggregate demand.

On the local front, MIDF Research expects Bank Negara Malaysia (BNM) to pause from further easing and assess the recovery in economic activities after the expected sharp contraction in growth during the second quarter this year.

“On the other hand, BNM has more room to cut should the economy weaken, as growth outlook could be constrained by persistent weakness in the labour market, or another wave of COVID-19 outbreak and slow recovery in the external demand,” it said.

On July 7, 2020, the central bank reduced the Overnight Policy Rate (OPR) by 25 basis points (bps) to 1.75 per cent to provide additional growth stimulus for Malaysia’s economy.

Cumulatively, BNM has reduced the OPR by 125 bps since January 2020 as economic activities slowed down, especially after the government imposed the Movement Control Order in response to the COVID-19 outbreak.

Meanwhile, MIDF Research said latest releases have pointed to more signs of recovery as more sectors have been allowed to restart their business activities.

The decline in the Industrial Production Index (IPI) eased to -22.1 per cent year-on-year (y-o-y) in May 2020 from -32.0 per cent y-o-y in April 2020, supported by the recovery in manufacturing output and electricity generation.

Additionally, consumption also picked up in May 2020 as distributive trade fell at slower pace of -23.8 per cent y-o-y against -36.6 per cent y-o-y in April 2020, while retail trade and sales of motor vehicles also recorded a strong rebound from the previous month.

– BERNAMA

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