Malaysia’s economy set to contract after 0.7% expansion in Q1

SINGAPORE (ICIS)–Malaysia’s economy is expected to contract in the second quarter after growing by 0.7% year on year in first three months of 2020, reflecting the longer duration of coronavirus containment measures both globally and domestically.

The slowdown in the first quarter also sharply reverses the 3.6% year-on-year expansion in the fourth quarter of 2019, Bank Negara Malaysia said in a statement.

The first-quarter GDP reading was also the lowest since the third quarter of 2009, when the economy contracted by 1.1%.

The Malaysian economy “is expected to contract in the second quarter” before gradually improving in the second half of this year, the central bank said.

Malaysia’s economy expanded by 4.3% in 2019, slowing down from the 4.8% growth in 2018.

The manufacturing sector registered a slower year-on-year growth of 1.5% in the first quarter, slowing down from the 3.0% expansion in the preceding three months. This is the slowest growth recorded since Q1 2013 when it expanded by 0.6%, according to the Department of Statistics Malaysia.

“On the supply side, the services and manufacturing sectors moderated while the other sectors contracted. In terms of expenditure, external demand and investments declined, while private consumption growth moderated,” Bank Negara Malaysia said.

On a quarter-on-quarter seasonally-adjusted basis, the economy contracted by 2% in January-March this year.

Malaysia’s GDP Growth

“The impact of Covid-19 and the Movement Control Order (MCO) will be felt mostly in the second quarter,” Singapore-based UOB Global Markets & Economics Research said in a note.

Malaysia first implemented the MCO on 18 March this year. A conditional movement control order (CMCO) which eases initial restrictions was implemented from 4 May.

The MCO, which includes international and domestic travel restrictions, limited work and operating hours and mandatory social distancing, significantly curtailed economic activity, the central bank said.

Petrochemical production was still permitted during the duration of the MCO, according to sources.

Production was only permitted for essential goods and services and the industries integral to their supply chains. Labour-intensive and consumer-oriented sectors were also impacted.

Prime Minister Muhyiddin Yassin on 10 May announced that the CMCO would be extended for another four weeks to 9 June.

“Despite a relaxation to allow most non-essential sectors to operate since 4 May, businesses remain cautious in resuming operations and ramping-up of activity given strict operating procedures and safety related concerns,” UOB said.

Malaysia has so far reported 6,742 coronavirus infections with 109 deaths, according to its health ministry.

LATEST DATA POINTS TO FURTHER WEAKNESS

Malaysia’s Industrial Production Index (IPI) dropped by 4.9% year on year in March, provisional data from the country’s statistics bureau showed on 12 May.

The petroleum, chemical, rubber and plastic sub-sector registered growth of 3.6% in March, down from 6.5% in February 2020.

The decline in production was broad-based, spanning the manufacturing, mining and electricity sectors, Malaysia-based Hong Leong Bank said in a note.

“Given the severity and the depth of the pandemic, we continue to see great amount of uncertainties and downside risks,” it said.

“Our base case remains for a V-shape [sharp] recovery for now but we also acknowledge increasing odds of a U-shape recovery amid disruption not only from global supply and demand dynamics, but also from the ‘new normal’ even if the outbreak eventually eases,” the bank added.

Bank Negara Malaysia said that the monetary and financial measures, as well as progress in transport-related public infrastructure projects, will provide further support to growth in the second half of this year.

Interactive by Department of Statistics Malaysia

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Focus article by Nurluqman Suratman