Malaysia’s economic recovery still weak

Private consumption is still in the negative territory albeit registering a lower annual decline, says economist


THE fresh RM10 billion stimulus package comes as leading indicators suggest that the economy is on the mend, but the pace of recovery is still weak in various segments in the Recovery Movement Control Order (MCO) period as private consumption has yet to register a positive rebound.

Sunway University Business School economist Prof Dr Yeah Kim Leng said private consumption, which contributes the biggest share to the country’s GDP, is still in the negative territory albeit registering a lower annual decline.

“The tapering plunges in wholesale and retail trade by -36.6% in April and -23.8% in May to -8.4% in June and -3.5% in July suggest a more gradual recovery in consumption activities in the third quarter (3Q).

“As such, since private consumption accounts for close to 60% of GDP, the domestic demand-driven economic recovery appears weak,” he told The Malaysian Reserve (TMR) yesterday.

Increasing risk of a second wave of Covid-19 infections in several countries also indicates slower growth prospects in the external sector.

Yeah added that given advanced economies are still grappling to curb the pandemic, Malaysia’s external sector, including the commodity exports, will face “sluggish growth prospects”.

He, however, noted that Malaysia’s economy is on the recovery track following a sharp plunge of 17.1% in GDP for the 2Q.

Among the key data that reflected economic recovery were steady increases in the Leading Composite Index (LI) from 0.6% in May to 4.6% in June before inching higher to 7.7% in July.

Manufacturing output also rose for two consecutive months with a 4.7% increase in June followed by 2.9% rise in July after registering a sharp contraction of 37.2% and 22.6% in April and May respectively.

Unemployment inched lower to 4.7% in July from 4.9% in June after peaking at 5.1% in May. Likewise, merchandise exports turned around to expand by 8% in June and 3.1% in July after contracting by 24.9% in April and 26% in May.

The country’s LI, which gauges future economic direction, recorded an annual increase for the third consecutive month as it expanded 7.7% to 109.2 points in July 2020 from 101.4 points last year.

On a monthly basis, the LI grew 4.4% from 3.8% recorded in June. According to data by the Department of Statistics Malaysia, the highest contribution was from Bursa Malaysia Industrial Index which stood at 1.8% in July compared to a contraction of 0.1% a month prior.

“The LI shows a sharp rebound indicating an economic recovery in the near future and anticipating a brighter economic outlook towards early 2021.

“However, the signal should be perceived with caution since the pandemic still remains in Malaysia and globally,” stated its chief statistician Datuk Seri Dr Mohd Uzir Mahidin in a statement recently.

The second-highest contribution came from the number of new companies registered (1%), followed by real imports of other basic precious and other non-ferrous metals (0.7%), real money supply (0.5%), real imports of semiconductors (0.3%) and number of housing units approved (0.2%).

The index for expected sales venue, manufacturing, however, contracted 0.1%.

MIDF Amanah Investment Bank Bhd economist Mazlina Abdul Rahman opined the macroeconomic indicators also point to a gradual improvement, but they have yet to return to pre-pandemic levels.

“Retail sales — a proxy to consumption/spending — are trending upward recently but still record year-on-year negative growth. That also justifies the government’s latest stimulus package ‘Kita Prihatin’ which mostly focused on cash assistance and wage subsidy, which are pro-consumption,” she told TMR.

The government unveiled an additional stimulus package worth RM10 billion on Wednesday which offers an additional RM2.4 billion for the wage subsidy programme, RM7 billion for Bantuan Prihatin Nasional and RM600 million worth of special grants for small enterprises.

Mazlina added that the sustainability of other indicators that have returned to positive territory such as industrial production and exports remains a concern following the recent surge in the Covid-19 cases abroad, coupled with several other uncertainties such as geopolitical tensions, protectionism and the upcoming US presidential election.

“In Malaysia, the increase in Covid-19 cases is still very localised and the stricter MCO is also very targeted, hence the impact to the economy is likely to be minimal,” she added.