PETALING JAYA: Despite the better-than-expected 0.7% growth recorded by the Malaysian economy for the first quarter of the year, economists shared Bank Negara Malaysia’s (BNM) caution over the country’s performance in the second quarter.
Socio-Economic Research Centre (SERC) executive director Lee Heng Guie agreed with BNM’s assessment that the GDP figures have yet to fully reflect the impact from Covid-19, which will be more apparent in the second quarter.
He explained that the growth prospects in the first two months of the year is largely positive and the indicators such as the production index only started to turn negative in March.
Lee also pointed out that in the GDP breakdown by sector, the services sector growth has been slashed to more than half and manufacturing fell to 1.5%, while the agriculture sector contracted to 8.7%, mining at -2% and construction at -7.9%.
“However, the private consumption figures are still going strong despite the movement control order (MCO) impact. Moving forward these numbers are expected to be supported by the timely payout of government measures and assistance such as Bantuan Prihatin Nasional,” he told SunBiz.
As the country enters its second week of conditional MCO, Lee observed that capacity still remains quite low for the services and manufacturing sector.
“In the meantime, private consumption will be key for Malaysia’s economy, until its major trading partners have reopened their economy.”
In this regard, the director noted that some of the country’s trading partners in Europe and the US have taken steps to reopen their economy, while Singapore is slated to resume trading in June.
For the full year, Lee stated SERC will retain its previous forecast of a 3% contraction, with a contraction expected for the second quarter, followed by a gradual recovery in the subsequent quarter and a return to growth in the fourth quarter.
Sunway University Business School Professor of Economics Yeah Kim Leng pointed out that recession risk in trade-dependent Malaysia remains very high in light of the looming global recession where millions have been thrown out of work notably in the US, the world’s largest economy.
“The three stimulus packages and the announced increase in relief funds by BNM will help to ease business and job losses while propping up domestic demand to offset the anticipated fall in export demand,” he said.
On the flip side, the professor pointed out that traders and investors’ aversion to the ringgit will likely see a temporary respite as the economy averted a decline in the first quarter.
Meanwhile, OCBC Bank economist, Wellian Wiranto expressed concerns over 2Q’20 GDP figures as BNM warned of an outright year-on-year (yoy) contraction for the quarter.
“Our sense is that the economy may see a contraction as deep as 6% yoy during the period, before eking out some gains in the second half to allow it to post growth of -0.5% for the full year,” he said in a report.
Having implemented a 100 basis points (bps) cut this year, the economist foresees the central bank leaving the overnight policy rate unchanged at 2%, if the baseline scenario holds.
“If there is any indication that growth momentum would suffer more deeply despite the easing of the MCO, BNM would not be hesitant to cut rate further below the now-historic low to 1.5%,” he said.
Meanwhile on the ringgit, FXTM market analyst Han Tan stated that the positive surprise in Malaysia’s 1Q’20 GDP underscores the nation’s economic resilience, but the contraction expected for the current quarter in line with the broader regional outlook which remains tilted to the downside.
He elaborated that Asian economies are having to contend with a global recession this year, and those prospects are weighing on the respective currencies.
“With the US dollar still holding court in the forex universe, coupled with depressed oil prices, the ringgit will likely have a tough time breaking into and staying on the stronger side of 4.30 against the US dollar over the near-term,” said Tan.
