Malaysia’s Q2 GDP contracts by 17.1% on virus-containment measures

SINGAPORE (ICIS)–Malaysia’s economy contracted by 17.1% year on year in the second quarter due to stringent measures adopted to contain the coronavirus pandemic, and weak external conditions.

It was a sharp reversal of the 0.7% growth in the first quarter, and the first contraction since the third quarter of 2009 during the global financial crisis, when the country’s GDP slid by 1.1%.

On a quarter-on-quarter seasonally-adjusted basis, Malaysia’s economy shrank by 16.5% following a 2.0% contraction in the first quarter of 2020, according to data released by Bank Negara Malaysia on Friday.

June-quarter domestic demand declined by 18.7% year on year due mainly to weaker private sector expenditure.

Private consumption fell by 18.5% year on year, reversing the 6.7% expansion in the first quarter.

Malaysia’s manufacturing sector contracted by 18.3% year on year in the second quarter, reversing the 1.5% growth in the first three months of 2020, “due largely to the imposition of MCO [movement control order] restrictions as well as weak demand conditions”, the central bank said.

The MCO from end-March to 3 May curtailed production activity across all industries, it said.

Following the lifting of the restrictions in May, manufacturing firms gradually restarted operations amid subdued domestic and external demand conditions.

Activity in the construction sector declined by 44.5% year on year in the second quarter, much deeper than the 7.9% contraction in the first three months of 2020, as almost all activities came to a standstill particularly in April.

“Most of the construction sites were reported to remain idle as developers faced challenges to restart, including financial constraints, initial lack of clarity over the standard operating procedures and Covid-19 [coronavirus disease 2019] testing, and disruptions in the supply of construction materials,” Bank Negara Malaysia said.

The Malaysian economy is expected to recover gradually in the second half of 2020 as the economy progressively re-opens and external demand improves, the central bank said.

Full-year GDP is expected to contract by 3.5-5.5% in 2020, before staging a rebound in 2021, with growth projected at 5.5-8.0%, based on the central bank’s forecasts.

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