COMMENT | Making forecasts in the middle of an unfolding economic crisis is always difficult, but unfortunately, the pessimistic forecasts we made in June, when we predicted that the economy would contract by 7.1 percent due to the Covid-19 pandemic, are proving right.

The market consensus is now catching up to what we had predicted some months ago. In August, Bank Negara revised down its forecast for gross domestic product (GDP) in 2020 to between -3.5 percent and -5.5 percent. The Asian Development Bank (ADB) revised its estimate down from -4.0 percent to -5.0 percent in September and the International Monetary Fund (IMF) revised its 2020 growth forecast down from -3.8 percent to -6.0 percent in October. Private sector forecasters are also heading toward a range of -6.0 percent to -7.0 percent as the true scale of the economic crisis has unfolded.

We also predicted a second wave of economic costs and we are seeing that now, not just in Malaysia but also around the world in Malaysia’s main export markets. Added to this, the uncertainty of the US election and the political instability here in Malaysia itself is creating a maelstrom of uncertainty within an already terrible economic situation.

Fortunately, some of our policy recommendations have been followed. There has been a 25 basis point cut in the OPR in September to 1.75 percent, but real interest rates still remain high at around 3.0 percent. An extra cash injection of RM10 billion was announced in September, but the full effect of the RM305 billion packages from the Prihatin and Penjana stimulus packages is difficult to gauge...