Analysts estimate GDP contracted in 4Q20

Economists estimated a median contraction of 3.9% in 4Q, with individual forecasts ranging between -1.7% and -6.9%


MALAYSIA’S GDP is expected to shrink slightly more than expected in the fourth quarter of 2020 (4Q20) as the country continues to grapple with the fallout of the Covid-19 pandemic.

A Bloomberg poll of 11 economists estimated a median contraction of 3.9% in 4Q20 versus 2.7% in 3Q20, with individual forecasts ranging between -1.7% and -6.9%.

The median full-year forecast is a 5.8% contraction. Bank Negara Malaysia (BNM) is slated to release the quarterly GDP data on Feb 11.

MIDF Amanah Investment Bank Bhd (MIDF Research) economist Mazlina Abdul Rahman said the anticipated downtick in the 4Q will likely push the country’s full-year GDP to 5.5%, worse than its initial estimate of 4.8%.

Mazlina said economic activities have remained below 2019 levels in 4Q20 mainly due to the Conditional Movement Control Order (CMCO) which is expected to have an adverse impact on the recovery process.

“The expectation is supported by more frequent data such as Industrial Production Index (IPI) and retail sales which showed slower performance in 4Q20. IPI recorded a tepid fall of 0.3% year-on-year (YoY) compared to a 0.8% YoY increase in 3Q20.

“Likewise, retail sales recorded a higher contraction of 1.9% YoY from October to November,” she told The Malaysian Reserve (TMR).

Nevertheless, MIDF Research foresees the economy to rebound in 2021 in line with resumption in global economic activities, benefitting from low base in 2020.

Mazlina said economic performance in 1Q21 is likely to be affected by the second MCO in place and renewed restrictions in key countries due to surging Covid-19 cases. “We believe the impact will be lesser than what we experienced under the first MCO with less restrictive measures.

“Most businesses are currently allowed to operate while the impact to private consumption could be cushioned by online spending,” she said.

With positive developments on vaccine distribution and the country’s expansionary fiscal and monetary policies, Mazlina said both demand and supply sides are expected to improve this year, particularly from 2Q21 onwards.

Solid growth expectations for Malaysia’s key trading partners, such as China and the US, will further assist Malaysia’s economic recovery via higher exports demand, she said.

AxiCorp Financial Services Pte Ltd chief global market strategist Stephen Innes said a contraction is widely expected and has been largely priced in.

Innes estimates a slower contraction of 3% than the 2.5% he expected on a YoY basis prior to the resurgence of Covid-19 cases in the country.

“The worst part is that Malaysia is still in MCO. Weakness in domestic activities continued to persist although exports still rising, as factories can still remain operational despite mobility restrictions.

“2021 will most certainly see a rebound, but the longer the MCO stays in effect, the less impressive it will be,” he told TMR.

Innes said further downside risk could come from China if policymakers decide not to offer more stimulus which could impede global recovery in 2021.

Moody’s Analytics Inc, meanwhile, expects Malaysia’s GDP to ease by 2% in the quarter, following the 18.2% rebound in 3Q.

“This should translate into a 1.35% yearly decline in the final quarter and bring the full-year GDP contraction to 5.1%. Malaysia’s economy rebounded strongly in the September quarter as pandemic-related restrictions were eased, which allowed domestic spending to resume, while a revival in external manufacturing demand also buoyed the aggregate gain,” the research firm stated in its Asia-Pacific Economic Preview report.

The deterioration in the domestic health crisis led to the reimposition of restrictions across parts of Malaysia in recent months and disrupted the recovery momentum.

Moody’s expect Malaysia’s December quarter revival to be moderated by the subdued domestic conditions, though some gains are likely accrued from stronger exports.

Read our previous report here

Aid needed to offset RM20b losses during MCO 2.0