Sharp contraction in 2Q GDP to push Malaysia into recession


MALAYSIA’S GDP in the second quarter of 2020 (2Q20) is expected to contract sharply, dragging the domestic economy into recession this year, said IHS Markit Asia-Pacific chief economist Rajiv Biswas.

South-East Asia’s fourth-largest economy has been severely hit by the impact of lockdown measures to prevent the escalation of the Covid-19 pandemic, Biswas said in his latest economic preview report.

With continued severe lockdown conditions having remained in place throughout April, 2Q20 GDP will be heavily hit by the negative economic effects of containment measures.

“First-quarter GDP contracted on a quarter-on-quarter basis, and 2Q20 GDP is also expected to show a sharp contraction due to the impact of the protracted lockdown.

“This is expected to push the Malaysian economy into a recession for the 2020 calendar year,” he added.

However, economic growth momentum is expected to gradually improve in the second half of this year (2H20), as domestic industrial production and consumption expenditure recover.

This would follow the easing of lockdown restrictions, while export orders gradually improve as lockdowns are eased in major export markets, notably Europe and the US.

The tourism sector is also expected to face a protracted period of economic distress, as restrictions on international visitors are still in force.

Widespread international travel bans to curb the spread of Covid-19 are also expected to restrict international tourism for some time.

Bank Negara Malaysia said earlier this year it expects the country’s GDP to grow to 0.5% or shrink as much as 2% for 2020, largely as a result of the pandemic containment measures.

On the manufacturing side, Biswas said Malaysia’s manufacturing export orders should gradually recover in 2H20, as lockdowns are eased across Europe and the US.

“Although due to the severe slump in the world economy, new export orders are not expected to recover to pre-Covid-19 levels until the middle of 2021,” he said.

Domestic industrial production fell 4.9% year-on-year in March, as the Movement Control Order came into effect on March 18 to curtail the spread of the deadly virus.

Industrial output in April was also badly hit by the combined shockwaves of the domestic lockdown and a severe global economic slump induced by the pandemic, according to IHS Markit’s Manufacturing Purchasing Managers’ Index (PMI).

“The latest Global Manufacturing PMI New Export Orders Index plunged in April due to the impact of widespread lockdowns in major economies worldwide.

“This signals a sharp slump in world manufacturing exports during the remainder of 2Q20,” Biswas said.

Electrical and electronics (E&E) exports, Malaysia’s largest manufacturing export sector, have also taken a hit from falling new export orders.

For the E&E sector, world demand for E&E equipment is only expected to recover at a gradual pace during 2H20.

“The pandemic had a severe impact on the global electronics sector in April, with the latest IHS Markit’s Global Electronics PMI data pointing to the steepest decline in business conditions since the global financial crisis,” Biswas said.