COVID-19 impact: Malaysia’s economy contracts 17.1% in Q2, agriculture respite


MALAYSIA’S economy contracted 17.1 per cent in the second quarter of 2020, the worst double-digit quarterly decline since 1998 due to the unprecedented lockdown that was imposed to stem the spread of COVID-19 that brought the economy to almost a complete standstill.

In the fourth quarter of 1998, Malaysia posted a double-digit decline of 11.2 per cent. The second quarter of last year the country recorded a gross domestic product (GDP) of 4.9 per cent.

The services, manufacturing, mining and quarrying and construction sectors all dipped 16.2 per cent, 18.3 per cent, 20 per cent and 44.5 per cent, respectively in the quarter, Malaysia’s Chief Statistician Datuk Seri Mohd Uzir Mahidin said today during a live stream 2Q20 GDP performance today.

Also present was Bank Negara Governor, Datuk Nor Shamsiah Mohd Yunus.

Mohd Uzir said the agriculture sector, however, saw some respite with a growth of one per cent.

He said with a slim growth of 0.7 per cent in the first quarter of this year, the first-half GDP comes to -8.3 per cent as compared with 4.7 per cent in the first half of last year, he said at a press conference here, today.

Regionally, Singapore registered a decline of 12.6 per cent growth to the GDP followed by the Philippines which saw a contraction of 16.5 per cent, while Indonesia recorded a 5.3 per cent decline.

Malaysia imposed a Movement Control Order (MCO) or a partial lockdown on March 18, 2020, where the economy was only operating at 45 per cent capacity.  This was eventually eased to Conditional MCO on May 4 and Recovery MCO effective June 10 to Aug 31, 2020, where the economy gradually opened up.

Nor Shamsiah said the aggressive intervention by the government has enabled a faster recovery.

BNM, she said, has revised its 2020 GDP growth forecast to -3.5 to -5.5 per cent from -2 to 0.5 per cent previously, as the initial assumption was based on a lockdown period of only four weeks instead of seven weeks.

“The economy is expected to recover and post a growth of 5.5 per cent to 8 per cent in 2021.

“The better growth outlook the second half of the year and 2021 is based on continued improvement in external conditions, gradual normalisation in economic activities and labour market conditions, new investment projects, demand for technology and healthcare products and expansion in commodity-related production capacity,” she said.

During the quarter, headline inflation was at -2.6 per cent, mainly due to substantially lower retail fuel prices compared to last year and the tiered electricity tariff rebate.

Core inflation moderated slightly to 1.2 per cent.

On the exchange rate, the ringgit appreciated by 0.5 per cent against the US dollar in the second quarter, following the resumption of non-resident portfolio inflows as investor sentiments and risk appetite improved.

“This was due to the quick implementation of large-scale liquidity injections and policy responses by central banks and governments.

“Additionally, investor sentiments were also supported by the gradual easing of movement restrictions in a number of countries,” Nor Shamsiah said, adding that this development is in line with regional currencies, which also appreciated against the US dollar during the quarter.

In the more recent period beyond the second quarter, the low global interest rate environment and optimism on a recovery in global growth continue to drive the positive market momentum within the region.

As a result, she noted that Malaysia continued to experience non-resident portfolio inflows and the ringgit appreciated by 2.2 per cent against the US dollar since end-June 2020 (as at 13 August).

However, the global environment remains highly uncertain in the near-term, which may lead to capital flows and exchange rate volatility going forward.

Net financing to the private sector continued to expand at 3.7 per cent on an annual basis.

Growth in outstanding business loans increased from 3.4 per cent in 1Q 2020 to 3.9 per cent in 2Q 2020, while outstanding household loan growth was sustained.

On a monthly basis, disbursements for business loans recovered to normal levels in June from low levels during the MCO in April and May, in line with business loan demand that increased during the quarter, especially for working capital needs, while household demand for loans continued to decline amid more cautious sentiments.

Concluding the one-hour briefing, Nor Shamsiah said Malaysia economy is expected to recover gradually in the second half of 2020 as the economy progressively re-opens and external demand improves.

Average headline inflation in 2020 is likely to be negative, in line with the earlier projected range of -1.5 per cent to 0.5 per cent, primarily reflecting the substantially lower global oil prices.