Malaysia’s economy expected to contract in 1Q20

Bank Islam is expecting a -1% GDP contraction in 1Q20, while AmBank Research’s full-year GDP growth projection is 0.4% with downside at -1.1%


MALAYSIA’S economy is likely to contract in the January through March period as key sectors are battered by the novel coronavirus pandemic.

Key sectors like tourism, manufacturing, exports, commodity, oil and gas, construction and public consumption have either come to a grinding halt or slowing to levels last seen during the global financial crisis of 2008/2009.

The pandemic has forced the government to impose movement restrictions, prohibit non-essential enterprises from operating and ban the entry of foreigners.

Tourism and related sub-sectors are almost non-existent as authorities extend the Movement Control Order until the middle of next month.

Oil prices have collapsed, inflicting a bigger cut to the economic wound, and analysts expect an economic contraction is more likely on the card now as the coronavirus has become a global catastrophe.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said he is expecting a -1% GDP contraction in the first quarter (1Q20), with looming challenges in the following quarters.

“At the moment, we are looking at around -1% GDP contraction and there is not much data to discern a growth. This will be the first (contraction) since 2009,” he told The Malaysian Reserve (TMR).

Malaysia’s economy contracted -6.2% in the first three months of 2009 and for the whole year, the economy recorded a -1.5% growth.

The government at the time injected US$16 billion (RM69.35 billion) into the economy.

Prime Minister (PM) Tan Sri Muhyiddin Yassin is expected to unveil a substantial stimulus package today to cushion the fallout from the coronavirus pandemic.

Mohd Afzanizam said the available figures have been less than encouraging so far with a 1.5% decline in nominal exports in January, the Industrial Production Index moderated to 0.6% and the Purchasing Managers’ Index was below the 50-point demarcation line for two months in a row.

“I think recession has become the base case. It’s a question of how deep the recession would be,” he added.

Malaysia’s neighbour Singapore is already projecting a negative growth of up to -4% this year after its 1Q20 GDP plunged 10.6% compared to 4Q19.

Thailand is also bracing for a recession with its central bank expecting the economy to contract as much as 5.3% this year, the worst since the Asian financial crisis of 1997-1998.

The country relies heavily on foreign tourists to sustain its economy, but its tourism sector is at a standstill. The sector accounts for 18.4% of Thailand’s GDP with 39.8 million tourists visiting the country last year.

Penang Institute CEO and head of economics studies Dr Lim Kim Hwa expects Malaysia’s economy to contract in 1Q20.

“It will certainly be a recession. The question is how deep and how long would it be,” he told TMR.

AmBank Group chief economist Anthony Dass is projecting that the economy will contract by -2.8% in 1Q20.

“The adverse impact is expected to be felt across all economic activities following a ‘partial’ lockdown by the new government in view of the increasing severity of the virus’ impact.

“Even prior to the outbreak of the coronavirus, the manufacturing sector has been in recession, impacted by the trade tension between the US and China,” he said in a research note.

Overall business and consumer confidence is softening, Dass said, as businesses are affected by the slow implementation, lack of clarity of policies, policy consistency issues, poor engagement between the authorities and businesses, and domestic political noises.

Underpinned by the ongoing external headwinds and domestic challenges, he reckoned the Malaysian economy is expected to fall into a technical recession in 2020.

“Following the outbreak of the coronavirus, it led to a severe disruption of global supply chain and shipping, as well as total trade.

“The Pakatan Harapan government unveiled a RM20 billion stimulus package to support the economic growth, projected to grow at a slower pace between 3.2% and 4.2%, which is higher than our base case projection of 2.5%-3%.”

Dass said Malaysia’s major trading partners such as the US and China are poised to be in recession in the first half of this year (1H20).

“Likewise, the eurozone and Japan. The electric and electronics sector will continue to be impacted by the global semiconductor downcycle.

“Falling oil and commodity prices, plus financial market volatility, will weigh on the domestic economic performance.”

He expects the economy to normalise in 2H20.

“And by which time, the partial or total lockdown would have been lifted as the virus impact eases globally,” Dass said, adding that AmBank Research’s full-year GDP growth for Malaysia is 0.4% with the downside at -1.1%.