Malaysia records 0.7% GDP growth in 1Q20, contraction expected in 2Q20

By NG MIN SHEN / pic by AFP

Malaysia’s economy as measured by GDP grew 0.7% in the first-quarter of 2020 (1Q20),  the lowest growth in over 10 years due to containment measures taken to curb the spread of the Covid-19 pandemic.

The 1Q20 GDP growth was the weakest since the third-quarter of 2009, when the economy contracted by -1.1%, Bank Negara Malaysia (BNM) governor Datuk Nor Shamsiah Mohd Yunus said in a live press conference today.

“The moderation reflected the impact of measures taken both globally and domestically to contain the spread of the Covid-19 pandemic. Domestically, it mainly reflected the implementation of the Movement Control Order (MCO),” she added.

The growth was also a sharp moderation from the 3.6% expansion recorded in 4Q19.

After a steady expansion in the first two months of 1Q20, economic activity came to a sharp downshift with the implementation of the MCO on March 18. Movement restrictions including international and domestic travel restrictions, limited work and operating hours and mandatory social distancing significantly curtailed economic activity.

The governor also said the domestic economy is expected to contract in the second-quarter, reflecting the longer duration of containment measures both globally and domestically.

However, economic activity should gradually improve in the second-half of 2020 (2H20), as containment measures are eased and the domestic MCO is lifted.

“The sizeable fiscal, monetary and financial measures and progress in transport-related public infrastructure projects will provide further support to growth in 2H20. In line with the projected improvement in global growth, the Malaysian economy is expected to register a positive recovery in 2021,” she said.

For the time being, the central bank is keeping its forecast for Malaysia’s GDP to be between -2% and 0.5% for the full year.

“We will provide a revised forecast in the second half once there is more clarity in the data and outlook especially for our major trading partners,” Nor Shamsiah said, adding that the uncertainties posed by Covid-19 and domestic commodity challenges make it highly difficult to provide a definitive forecast range.

Headline inflation came in at 0.9% in 1Q20, mainly reflecting the lapse in the remaining impact from Sales and Service Tax (SST) implementation and lower price-volatile inflation.

Average headline inflation in 2020 is likely to turn negative due to projections of substantially lower global oil prices, although Nor Shamsiah said the risk of deflation is “limited” as the impact of Covid-19 on prices across sectors is not broad-based, given that demand is high for certain items such as food and low for certain others.

Meanwhile, the Special Relief Facility (SRF) which was made available in March 6 has been fully taken up, with over 20,000 applications amounting to about RM10 billion approved as at May 4.

The RM5 billion SRF allocation will benefit more than 9,000 small and medium enterprises (SMEs) nationwide and preserve more than 200,000 jobs.

“In view of the strong demand, BNM has upsized the SRF by another RM5 billion to cater for all of the applications approved by participating financial institutions as at May 4, bringing the total final allocation to RM10 billion,” the central bank said.