by BERNAMA/ pic by TMR GRAPHIC

AFTER the “largely expected” economic contraction for the second quarter of 2020 (2Q20), Malaysia may see a gradual recovery starting from the 3Q depending on its progress in containing the Covid-19 outbreak, said MIDF Research.

In a note yesterday, it said recovery would also depend on how the rest of the world, particularly Malaysia’s key trading partners, are combating the virus as this would affect global demand for the country’s products.

“The economic stimulus package is anticipated to provide some cushion to the adverse impact resulting from Covid-19,” said MIDF Research, which is a part of MIDF Amanah Investment Bank Bhd.

It noted that Malaysia’s Leading Index (LI) declined further to -4.9% month-on-month (MoM) in March from -0.8% MoM in February, signalling an economic recession for the July-September 2020 period.

The hardest monthly fall since November 1991 was mainly due to the first phase of Movement Control Order (MCO), which was implemented on March 18, the research house said.

Five out of the seven LI components declined, including real imports of semi-conductors, Bursa Malaysia Industrial Index and the number of new companies registered.

The leading economic index fell 3.6% year-on-year (YoY) in March, following a 1.7% YoY gain in the preceding month.

Malaysia’s export growth, it noted, recorded a four-month low in March. Total trade shrank by 3.8% YoY with exports and imports contracting by 4.7% and 2.7%, respectively.

The overall Industrial Production Index (IPI) also declined by 4.9% YoY in March, the first contraction since December 2015 and the steepest since September 2009.

The performance, which was slightly worse than market expectation, was due to a decline in all sub-indexes.

“The plunge was very much expected due to the disruption in the overall supply and demand chain domestically and globally due to Covid-19. In particular, Malaysia began its MCO in March. Overall, in the 1Q of this year, the IPI managed to record tepid growth albeit at a moderating pace of 0.6% YoY (1.3% YoY in 4Q19).

“Looking ahead, we expect IPI performance in 2Q20 to contract, owing to the extension of MCO and fluctuating commodity prices,” MIDF Research said.

It forecast unemployment rate to breach the 4% full employment condition in upcoming months, adding that as the government reopens the economy, the job market would slowly recover and fears surrounding Covid-19 would begin to subside.