Malaysia’s 1Q GDP moderates sharply to 0.7%

Photo credit: BNM

Bank Negara Malaysia has announced that the country’s economy has moderated sharply to 0.7 percent in the first quarter of 2020. The services and manufacturing sectors have moderated while other sectors contracted.

According to the central bank, external demand and investments saw a decline, while private consumption growth moderate. On a quarter-on-quarter seasonally-adjusted basis, the economy contracted by 2 percent.

In a press statement, BNM stated that the moderation reflected the impact of measures taken both globally and domestically to contain the spread of the pandemic.

With the implementation of the MCO, economic activity came to a sharp downshift and with movement restrictions both nationwide and internationally which led to travel restrictions, limited work and operating hours as well as the mandatory social distancing had significantly curtailed economic activity.

During the first quarter, headline inflation remained modest at 0.9 percent, mainly reflecting the lapse in the remaining impact from the Sales and Services Tax (SST) implementation and lower price-volatile inflation. Core inflation moderated slightly to 1.3 percent.

“The global and Malaysian economic outlook for 2020 will be significantly impacted by the Covid-19 pandemic as strict measures to contain the spread of the pandemic will weigh considerably on both external demand and domestic growth,” the central bank said in its statement.

The economy is also expected to contract in the second quarter further reflecting the longer duration of containment measures both globally and domestically.

However, as containment measures are expected to ease and with domestic MCO potentially being lifted, economic activity is expected to gradually improve in 2H 2020.

BNM also highlighted that the sizable fiscal, monetary and financial measures and progress in transport-related public infrastructure projects will provide further support to growth in the second half.

“In line with the projected improvement in global growth, the Malaysian economy is expected to register a positive recovery in 2021,” said BNM.

Moving forward, the outlook of headline inflation remains significantly affected by global oil and other commodity prices including food, as well as evolving demand conditions.

Underlying inflation is expected to be subdued amid the projections of weaker domestic growth prospects and labour market conditions.

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