The COVID-19 pandemic is driving the global economy into recession and many countries, including Malaysia, are responding with stimulus packages to avoid a cascade of bankruptcies and emerging market debt defaults. The country’s dependency on oil revenue will further strain the government’s fiscal position amid declining oil prices.
The country’s economy expanded 4.3% in 2019 (2018: 4.7%), the lowest growth since the global financial crisis in 2009. It weakened further to record at 0.7% in 1Q2020 (4Q2019:3.6%), reflecting the early impact of measures taken both globally and domestically to contain the spread of the novel coronavirus. Malaysia's economic growth for 2020, as measured by gross domestic product (GDP), is projected at between -2.0% and 0.5%.
The period of low headline inflation, recorded at 0.7% in 2019 (2018: 1.0%), mainly reflects the lapse in the impact from the Sales and Services Tax (SST) implementation. It continued to remain modest at 0.9% in 1Q2020 (4Q2019: 1.0%) due to lower fuel costs. The country’s average headline inflation for 2020 is expected to turn negative due to lower global fuel prices coupled with weaker domestic growth prospects and labour market conditions.