[Updated] Malaysia’s GDP contracted by 3.4% in fourth quarter

PETALING JAYA: The economy contracted by 3.4% in the fourth quarter last year, compared to a contraction of 2.6% in 3Q, attributed to the imposition of the conditional movement control order (CMCO) on a number of states since mid-October.

All economic sectors, with the exception of manufacturing, recorded negative growth, while moderating private consumption and public investment activities weighed on domestic demand.

Chief statistician Malaysia Datuk Sri Mohd Uzir Mahidin said the services sector declined 4.9% in 4Q’20 due to the contraction of sub-sectors for tourism-related industries following travel restrictions which contributed to lower foreign tourist arrivals to Malaysia as well as the movement restriction of domestic tourists in the country.

“The construction sector took the worst hit, contracting 13.9% year on year from 1% growth in Q4’19, due to the negative growth in civil engineering, non-residential buildings and residential buildings.

“However, the manufacturing sector maintained positive growth at 3% during the quarter driven by petroleum, chemical, rubber & plastics products followed by electrical, electronic & optical products,” he said at Bank Negara Malaysia’s (BNM) quarterly economic briefing today.

He pointed out that the continuous positive growth was contributed by the export oriented industries which grew 3.4% on-quarter in line with the overall export performance which recorded a positive growth of 5.1% in 4Q’20. Similarly, the performance of domestic-oriented industries increased by 2.2% during the quarter.

Net exports remained positive by registering 12.4%, which was stimulated by higher external demand where exports recorded a better growth as compared to imports. This has indirectly led to a trade surplus of RM184.8 billion in 2020 with a total trade of almost RM2 trillion.

For the quarter, headline inflation declined to -1.5% in part reflecting the larger decline in retail fuel prices as compared to the corresponding period last year. Core inflation moderated to 0.8% due mainly to lower inflation for communication services and rental.

Meanwhile, the ringgit appreciated by 3.6% against the US dollar during the fourth quarter of 2020, driven mainly by non-resident portfolio inflows as investors’ risk appetite continued to improve.

However, from Jan 1 - Feb 8, BNM governor Datuk Nor Shamsiah Mohd Yunus said the ringgit has depreciated by 1.2% against the greenback, in line with broad-based weakening in major and regional currencies, following the strengthening of the dollar amidst enhanced prospects for an economic rebound in the US.

“Concerns over the rise in Covid-19 infections and its implications for domestic economic activity also weighed on investor sentiments,” she said.

Portfolio investments recorded a smaller net outflow of RM6.9 billion in the fourth quarter (3Q’20: -RM23.1 billion), while net foreign direct investment recorded an inflow of RM6.1 billion (3Q’20: RM800 million), driven by higher equity injections and inflows in debt instruments.

In the near term, the risk of heightened exchange rate volatility remains as lingering uncertainties surrounding the momentum of the global economic recovery will continue to have a bearing on investor sentiments.

Overall for 2020, gross domestic product (GDP) declined by 5.6%, as the travel restrictions especially on inter-district and inter-state travel, weighed on economic activity.

On the demand side, all expenditure components recorded negative growth except government final consumption expenditure which recorded a positive growth of 4.1% (2019: 2%).

Private final consumption expenditure declined 4.3% (2019: 7.6%) while gross fixed capital formation plummeted 14.5% (2019: -2.1%). Besides that, net exports sharply fell 12.3% (2019: 9.7%) attributed by the slower exports performance compared to Imports.

Looking ahead, Nor Shamsiah said while near term growth in 2021 will be affected by the re-introduction of stricter containment measures, the impact, however, will be less severe than that experienced in 2020 with the growth trajectory projected to improve from the second quarter onwards.

“The improvement will be driven by the recovery in global demand, and will also be supported by a turnaround in public and private sector expenditure amid continued support from policy measures and higher production from existing and new facilities in the manufacturing and mining sectors.

“The vaccine roll-out which will commence this month is also expected to lift sentiments,” she said.

For 2021, headline inflation is projected to average higher, primarily due to higher global oil prices. Underlying inflation is expected to remain subdued amid continued spare capacity in the economy.

As for the Overnight Policy Rate, Nor Shamsiah said the central bank’s monetary policy will continue to be accomodative to support economic growth.

“Given uncertainties surrounding the pandemic, monetary policy going forward will continue to be determined by new data and information.”