Malaysia’s GDP falls 4.5% in 3Q21 due to containment measures


Malaysia’s economy contracted by 4.5% year-on-year (YoY) in the third quarter of 2021 (3Q21) due to the strict containment measures instituted to combat spread of the Covid-19 virus under Phase One of the National Recovery Plan (NRP).

Bank Negara Malaysia (BNM) said economic activity has subsequently started to pick up as more states transitioned into Phase Two with less restrictive containment measures. 

On the supply side, all economic sectors registered a contraction in the quarter. The construction sector contracted the most due to operating capacity limits, the central bank said. 

On the expenditure side, domestic demand declined by 4.1% in the 3Q weighed down by the contraction in private consumption and investment activities, while continued increase in public sector consumption spending provided support to growth.

“Progressive lifting of containment measures and continued improvements in the labour market will be key to support the recovery going forward,” BNM governor Datuk Nor Shamsiah Mohd Yunus said during the virtual briefing of 3Q21 GDP today.

On a quarter-on-quarter basis, Malaysia’s economy contracted 3.6%, which was a larger decline against the 1.9% contraction in the preceding quarter.

Headline inflation moderated to 2.2% in the quarter due to the dissipation of the base effect from fuel prices and the implementation of the three-month electricity bill discounts, BNM stated.

Core inflation was unchanged at 0.7% during the quarter.

The ringgit depreciated by 0.8% against the US dollar in the period and reflected the broad strengthening of the greenback following greater clarity from the US Federal Reserve that it would likely begin tapering its asset purchase programme towards the end of 2021.

“The ringgit is supported by an improved domestic outlook amid the economic reopening and higher commodity prices. 

“Going forward, as uncertainties regarding global liquidity adjustments and developments surrounding the path of the pandemic remain, financial and foreign exchange markets are expected to be subject to periodic bouts of volatility,” the governor said.

Net financing to the private sector grew 3.9% in the period, lower than 4.4% in the preceding quarter, due to lower growth in outstanding loans and outstanding corporate bonds.

Outstanding household loan growth moderated to 3.2% amid slower growth across all purposes.

Loan applications and disbursements improved in September given the relaxation of movement restrictions.

Outstanding business loans grew at a faster rate of 2.4% in the 3Q as compared with 1.3% in 2Q21, supported by higher working capital loan growth, mainly driven by the wholesale and retail trade, restaurants and hotels, and manufacturing sectors, in line with the resumption of business activity.

Nor Shamsiah said the Malaysian economy is expected to improve following the normalisation of economic activities.

She said the domestic economy is on track to meet the 3% to 4% forecast growth, supported by increase in economic activities as containment measures are progressively relaxed and continued policy support.

“The various relaxations of restrictions for fully vaccinated individuals including for interstate travel would also spur tourism-related activities. 

“In addition, the strength in global demand will continue to support export growth,” she said.

The governor said Malaysia’s growth trajectory is expected to improve in 2022 given the resumption of economic activities, further improvement in the labour market, continued policy support and expansion in external demand. 

She added the progress and efficacy of vaccinations, compliance with standard operating procedures (SOPs) as well as the ability to effectively contain outbreaks from any new Covid-19 variants of concern (VOCs) will be key to the expected recovery.

Headline inflation has averaged at 2.3% year-to-date, and is projected to average between 2% and 3% for 2021, while underlying inflation is expected to average below 1% for the year.

Nor Shamsiah said headline inflation is 2022 is projected to remain moderate as economic activity normalises, core inflation is expected to edge upwards but remain benign given the continued spare capacity in the economy and slack in the labour market. 

The outlook, however, continues to be subject to global commodity price developments and some risk from prolonged supply-related disruptions, she said.