Malaysia officially in recession

BNM will announce GDP performance today, but contraction in 3Q is, however, expected to be much milder


MALAYSIA is in a recession with GDP expected to contract in the third quarter (3Q) due to the disruption to economic activity caused by the Covid-19 pandemic.

Bank Negara Malaysia (BNM) will announce the country’s GDP performance today, with economists expecting the central bank to confirm expectations the record 17.1% contraction recorded in 2Q was a one-off event despite the economy continuing to contract in the 3Q.

The contraction in the 3Q is, however, expected to be much milder as domestic economic activity has been revived as is the case with the global economy.

CGS-CIMB Securities Sdn Bhd projects GDP to contract by 3.5% year-on-year (YoY) for the quarter amid signs of visible recovery in the country’s key sectors.

“Recent data suggest Malaysia’s GDP likely declined in the 3Q, pointing to sequential gains from the restart of economic activities after the lockdown inflicted 17.1% contraction in the 2Q, but still lagging the pre-Covid-19 momentum.

“We project GDP to contract by 3.5% YoY in the 3Q due to the successive extensions in the Conditional Movement Conditional Order (CMCO) 2.0 timespan and geographical scope versus our initial assumption that it would conclude on Oct 28,” it said in a report.

The broker noted that the Industrial Production Index rose 1% YoY in September as manufacturing built on recent gains led by export-driven rubber products and electrical and electronics, as well as the lift in the automotive sector due to the sales tax exemption-driven demand.

The mining and electricity subindices continued to fall 9.6% YoY and 2.1% YoY respectively, it added. AmInvestment Bank Bhd (AmBank Research) projected a strong rebound in 3Q GDP performance, with the print showing a contraction of 2% to 3%.

“Positive growth of distributive trade re-emerged after six months of contraction, climbing 0.2% YoY in September from a contraction of 2.3% YoY in August, clearly showing more people are coming out from their homes and spending in the physical shops.

“This is also being reflected by the strongest outstanding household loan growth in 17 months, rising 5.2% YoY from 4.8% YoY in August,” it said.

Details from distributive trade also showed a faster increase in motor vehicle sales of 17.1% YoY in September, while retail sales grew at 1.1% YoY in September, offsetting the weak wholesale trade at negative 4.2% YoY growth from the 3.9% decline in the previous month.

“On average, the 3Q distributive sales remained under negative expansion at around a contraction of 1.9%.

“The latest set of data from the manufacturing, services, construction and crude palm oil prices confirmed our view of a strong rebound in 3Q,” it said.

Maybank Investment Bank Bhd, which projects the GDP to contract by 3.3% YoY, said the Manufacturing Production Index turned positive in 3Q as export-based industries rebounded by 4.6% YoY, while the domestic-oriented industries stabilised at 0.4% YoY.

The increment was led by the rubber glove sector, which saw tremendous sectorial gains, followed by the manufacturing of printed circuit boards, automotive vehicles and electronic integrated, it added.

For the final quarter of the year, AmBank Research said the economy’s performance could turn flat compared to the performance in 3Q, factoring in the implementation and extension of the CMCO in several states, mainly in Kuala Lumpur, Selangor and Sabah.

“The stringent implementation of the standard operating procedures (SOPs) is expected to add some drag to consumption activities due to lower out-of-home and non-essential consumption activities,” it said.

Looking ahead, CGS-CIMB anticipates a better growth forecast for 2021, mainly due to the supportive monetary policy and normalising economic activities, coupled with the breakthrough in Covid-19 vaccine development.

“We maintain our expectations of a 7.5% GDP rebound in 2021, driven by supportive fiscal and monetary policy, as well as an assumption of normalising economic activities and easing social-distancing requirements by mid-2021, which has been bolstered by recent progress on a vaccine breakthrough,” it said.