Malaysian economy witnesses worst slump in Q2, contracts by 17.1%

The Malaysian economy has contracted by 17.1 percent in the Q2 of 2020. In a press statement by Bank Negara, the decline reflected the impact caused by the Covid-19 outbreak, both globally and domestically.

OCBC Treasury Research’s Wellian Wiranto pointed out that the slump is the sharpest ever and came much worse than what was expected.

“At a growth rate of -17.1% yoy, the data shows that the deepest contraction in any quarter, even worse than the -11.2% that Malaysia went through in Q4 1998 at the height of the Asian Financial Crisis,” he said.

On a quarter-on-quarter seasonally-adjusted basis, the economy contracted by 16.5 percent. During the quarter, inflation was at -2.6 percent due to substantially lower retail fuel prices compared to last year and the tiered electricity tariff rebate

Core inflation moderated slightly to 1.2 percent.

“In the second quarter of 2020, the ringgit appreciated by 0.5% against the US dollar, following resumption of non-resident portfolio inflows as investor sentiments and risk appetite improved,” Bank Negara stated.

As a result of a low global interest rate environment and optimism on a recovery in global growth in a recent period, the ringgit appreciated by 2.2 percent against the US dollar since end-June 2020.

Growth in outstanding business loans increased from 3.4% in 1Q 2020 to 3.9% in 2Q 2020, while outstanding household loan growth was sustained.

According to the central bank, this was in line with business loan demand that increased during the quarter, especially for working capital needs, while household demand for loans continued to decline amid more cautious sentiments.

The improvement growth will also be supported by the recovery in global growth and continued domestic policy support. In particular, consumption and investment activity is projected to benefit from the wide-range of measures in the fiscal stimulus packages, continued financial measures and low interest environment.

“Overall, the Malaysian economy is therefore forecasted to grow within the range of -3.5% to -5.5% in 2020, before staging a rebound within a growth range of 5.5% to 8.0% in 2021,” Bank Negara stated.

Additionally, average headline inflation in 2020 is likely to be negative, in line with the earlier projected range of -1.5% to 0.5%, primarily reflecting the substantially lower global oil prices.

For 2021, headline inflation is forecasted to average higher, between 1% to 3%, in line with the longer-term historical average.

OCBC’s Wiranto believes despite the multiple hits, there are silver linings to look out for.

“Even though April and May saw deep contractions across major economic indicators ranging from trade and industrial production to credit card spending and electricity generation, there has also been a sharp recovery starting from June, akin to the uptick in export activities that we mentioned earlier,” he commented.

BNM has also stated that there is still room for additional targeted policy measures should there be a second wave of Covid-19 infections.

“Should there be a second outbreak, there is room for targeted policy measures to complement the ones implemented earlier. For example, the bank’s policy levers can be expanded or extended within this mandate,” said BNM’s Governor Nor Shamsiah Mohd Yunus.





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