Development Digest : Navigating the New Normal

Malaysia is no stranger to external shocks affecting its macroeconomy. Over the past two decades, it was buffeted by the 1997 Asian Financial Crisis (AFC), the 2001 global slowdown after 9/11, and the 2008 Global Financial Crisis, each shock affecting the Malaysian economy in different ways. The first one resulted in the steepest economic contraction in Malaysia's history – reversing growth to negative 7.35 percent in 1998. The country surmounted this massive crisis through prudent policymaking, and drew important lessons to protect itself from the latter two economic shocks. This latest global COVID-19 (coronavirus) crisis is particularly unique, given the context in which it emerged and the dual threats it poses to states and societies across the world. Prior to COVID-19's global spread during the last two months, economic growth in almost all countries had already slowed on the back of trade tensions between the United States and China. Against this softening economic backdrop entered the COVID-19 virus. What began as a localized epidemic in Wuhan, China has now transformed into an international public health crisis and an international economic crisis creating supply and demand shocks in over 180 countries. Amidst this unfolding global pandemic, international oil prices, too, began to plummet in early March adding additional fiscal pressure on oil-producing countries including Malaysia.