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High single-digit contraction in Malaysia’s Q2 GDP expected

09 Aug 2020 / 20:43 H.

PETALING JAYA: With Malaysia’s economy facing strong headwinds from the impact of the Covid-19 pandemic, economists expect an inevitable contraction in the latest gross domestic product (GDP) growth numbers when Bank Negara Malaysia announces them on Friday.

For second-quarter 2020 (Q2’20), MIDF Research’s economist, Mazlina Abdul Rahman, projects a 7.2% contraction in Malaysia’s GDP, on the back of the implementation of the movement control order (MCO) which started on March 18, which was in line with similar containment and lockdown measures taken in other countries. She explained that most economic activities characterised as non-essential were put on hold and the country was effectively hit by domestic and global conditions.

In the coming GDP announcement, Mazlina expects all expenditure components to show contraction in the second quarter, with the exception of government consumption due to the stimulus packages introduced.

“Private consumption, which is the biggest contributor to our GDP, is likely to fall as consumers stayed home during MCO which reduced their overall expenditure – on top of retrenchment in affected sectors which resulted in loss of income,” she told SunBiz.

In addition, the economist expects negative growth across all key sectors, including services, partially due to the closure of international borders and weak travel sentiment.

She noted that the projection is supported by the more frequent availability of macro data such as exports, industrial production index (IPI) and retail sales.

In the case of exports and IPI, Malaysia has averaged a 14.3% and 18% decline year on year in Q2’20, compared to a 1.1% and 0.6% growth, respectively.

Her assessment is echoed by Bank Muamalat’s economist, Izuan Ahmad, who expects a possibility of a high single-digit contraction for the quarter from the containment measures implemented during the period.

He concurs that private consumption is seen to undergo a slowdown, as consumer sentiment was adversely affected from the pandemic and resulting MCO periods that led to reduced spending given the uncertain economic condition and high unemployment rate which spiked to 5% in April and 5.3% in May.

Furthermore, Izuan pointed out that public and private investments also suffered from weak demand and weak business sentiment as most businesses were prohibited from operating at full capacity during the quarter.

“In addition, Malaysia’s external trade performance in second-quarter 2020 was not favourable as export, import and trade volumes in April and May deteriorated, which led to a trade deficit of RM3.5 billion in April 2020 the first monthly deficit in over 22 years,” he said.

“Nevertheless, external trade performance improved slightly to register single-digit growths in June 2020.”

Izuan also shared Mazlina’s view that public consumption will be the quarter’s only saving grace as Malaysia’s federal government has introduced a RM295 billion economic stimulus package with a direct fiscal injection of RM45 billion to provide aid and support to those adversely affected by the pandemic.

Overall, with regard to the country’s economic performance, the World Bank has anticipated Malaysia’s GDP to shrink by 3.1% in 2020, a stark downward revision from a 0.1% contraction expected previously, to reflect the severity of the pandemic’s economic impact.

Similarly, the International Monetary Fund has revised the country’s GDP forecast to a 3.8% y-o-y contraction from a previous estimate of 1.7% decline in growth due to Covid-19’s larger-than-expected negative impact on global activity in first-half 2020.

Private consumption likely to fall as consumers stayed home during MCO which reduced their overall expenditure. – REUTERSPIX

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