The World Bank has reaffirmed that the domestic economy could drift into recession and contract by 3.5 percent in 2020 should the Covid-19 pandemic continue to spread and turn into a health crisis.
The Bretton Woods institution expressed the fears in its latest Malawi Economic Monitor (MEM) titled From Crisis Response to a Strong Recovery virtually launched in Lilongwe on Friday. The biannual publication provides an analysis of economic and structural development issues in Malawi.
The bank said the global pandemic was still evolving and the economic outlook remains uncertain.
Reads in part the report: “Risks are heavily tilted to the downside and in a downside scenario with extensive domestic spread of the disease, stricter restrictions on economic activity and a protracted global health crisis, the economy could contract by 3.5 percent in 2020.”
A recession is a period of economic decline during which trade and industrial activity shrinks and is generally manifested by a fall in gross domestic Product (GDP) in two successive quarters.
The latest projection by the World Bank is slightly different from an earlier projection by its sister institution, the International Monetary Fund (IMF) which sees the country’s economic growth rate at one percent, which is well below the initial pre-Covid-19 estimates of around four percent.
However, the World Bank projection tallies with that of the Economist Intelligence Unit (EIU), the research and analysis division of Economist Group, which expects a GDP contraction of about four percent this year.
In view of the extensive spread of the disease in the country and a protracted global health crisis, the World Bank said that only the agriculture sector would still be growing while manufacturing and services would face a significant decrease.
“In turn, this would cause a severe contraction in disposable income and private consumption.
“An expected rebound in 2021 will depend critically on an effective containment of the pandemic and a recovery in domestic demand as well as the implementation of effective economic measures,” reads the report.
Speaking virtually during the launch, new World Bank country manager for Malawi Hugh Riddell said with Covid-19, the key challenge for many countries, including Malawi was the balance between immediate response—to save lives and livelihoods—and the need to protect future recovery based on prudent fiscal management.
He said during pre-Covid-19, Malawi was pursuing its third consecutive year of solid growth but lamented that such a track record is now under threat as a result of several factors, including reduced demand and disrupted supply chains, declining tourism and remittances and tumbling household consumption.
“Slower growth could increase poverty, especially in the informal service sectors in urban areas,” said Riddell.
In an interview on Friday, economist Gowokani Chijere-Chirwa agreed with the World Bank’s latest projections, saying there is need for government to scale up more social protection measures in the coming full budget.