Malaysia’s record Q2 GDP plunge looks grim but worst is likely over, say economists

Bank Negara Malaysia Governor Datuk Nor Shamsiah Mohd Yunus said the record low growth numbers stemmed from the movement control order enforced on March 18 that spanned close to three months. ― Bernama pic
Bank Negara Malaysia Governor Datuk Nor Shamsiah Mohd Yunus said the record low growth numbers stemmed from the movement control order enforced on March 18 that spanned close to three months. ― Bernama pic

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KUALA LUMPUR, Aug 26 — Economists pinned the country’s worst-ever second quarter GDP contraction on Putrajaya’s imposition of movement control ahead of regional rivals and said Malaysia still performed reasonably well when this was considered.

Economic growth from April to June contracted 17.1 per cent, Bank Negara Malaysia announced last week, as domestic spending and exports fell to levels not seen since the 1997 Asian Financial Crisis.

Bank Negara Malaysia Governor Datuk Nor Shamsiah Mohd Yunus said the record low growth numbers stemmed from the movement control order enforced on March 18 that spanned close to three months, as public health authorities attempted to curb the spread of Covid-19 that peaked in April.

Economist Dr Barjoyai Bardai of Universiti Tun Abdul Razak said the Malaysian economy effectively went into total halt when it was still in the first quarter, causing a ripple effect in the ensuing three months.

“Basically we closed on March 18 when it was still in Q1 but the impact is only felt in the beginning of Q2,” he told Malay Mail.

“So the impact was very drastic as we closed our economy totally for nearly three months until June 10. The strongest impact was in April, when it peaked,” he added.

“When we close the economy, it’s like slowing traffic. We cannot move forward, no other way but to halt.”

Growth contracted by 20 per cent in April but improved slightly in May and June to -17 and -15 per cent, respectively, after the government slowly lifted its movement control order and allowed most key economic sectors to resume, Barjoyai noted.

“So on average in the three months it contracted at around 17.1 per cent,” he said.

Decent performer

Malaysia shut its borders and imposed strict movement restrictions far earlier compared to most of its South-east Asian neighbours like Indonesia, Thailand and Singapore, which only enforced tighter travel curbs beginning April to early May.  

Hoo Ke Ping, economic adviser at KSI Strategic Institute for Asia Pacific, said countries that locked down much later were likely to post worse growth results in the third quarter while the Malaysian economy was already in a recovery phase.

“Theirs will be a delayed effect because they never imposed strict restrictions early like we did,” Hoo said.

“Their Q3 growth will be worse compared to us because by then we are already recovering.”

Singapore became one of Asia’s worst Q2 economic performers to date, contracting by 42.9 per cent compared to the previous quarter to place the country under a technical recession.

The island republic’s latest GDP estimate — computed largely from data in April and May — was worse than analysts’ forecast, CNBC reported.

Economists polled by Reuters had expected the Southeast Asian economy to shrink by 37.4 per cent quarter-over-quarter.

Thailand’s Q2 growth contracted by 12.2 per cent, the largest in 22 years while Indonesia’s 5.32 per cent contraction also beat most economists’ estimates.

“These numbers show views that Malaysia was the worst performer is inaccurate,” Hoo remarked.

“As a matter of fact we did quite well considering we are already showing signs of recovering,” he added.

More stimulus

Both economists expect the effects of stimulus rolled out since April to spur recovery in the remaining half of 2020. Prime Minister Tan Sri Muhyiddin Yassin’s government injected close to RM300 billion in stimulus in several rounds that started in April.

“The impact will only come into effect by June or July, that will be seen in Q3,” Barjoyai said.

“Until today some of the package has not yet run out since SMEs are rather reluctant to take it up. Also, some of the grants have not yet arrived to their recipients.”

BNM last week revised its official gross domestic product (GDP) growth forecast for 2020 to between -3.5 and -5.5 per cent mainly due to changes in world growth forecasts and the unprecedented length of the movement control order (MCO).

The central bank had previously forecasted growth of between -2 and 0.5 per cent for the year.

Economists polled by Malay Mail all backed calls for the government to inject more stimulus by the second half of this year.

“It is necessary since it is meant to absorb the cost of closing the economy because the package's RM45 billion is just enough to cover,” Barjoyai said.

“Even then employment associations still complain.”

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