KUALA LUMPUR, Dec 10 — Malaysia’s private consumption and services sector are expected to contract 3.4 per cent and 4.5 per cent year-on-year (y-o-y) respectively this year, amid impacts caused by the Covid-19 pandemic, according to MIDF Research.

In a note today, the research firm said the pandemic had stifled domestic demand as consumers reduced spending and tightened their purse strings due to uncertainty over the near future.

This was reflected in double-digit contraction in the gross domestic product (GDP) of these segments in the second quarter of 2020 (Q2).

“While we believe Q2 was the trough, particularly due to the movement control order (MCO) in place, consumption will only advance gradually to be underpinned by low inflationary pressure, Overnight Policy Rate (OPR) cuts and economic stimulus packages via people-centric measures.

“This is due to the recent resurgence of new Covid-19 clusters, which could limit the people’s outdoor activities,” it said, adding that spending, especially on non-essential items, would take longer than expected to fully recover.

The services sector, particularly involving hotels and aviation, will continue to be pressured by the internal border closure, it said.

Meanwhile, Malaysia’s distributive trade declined slightly by 0.8 per cent y-o-y in October as growth in motor vehicle sales were inadequate to offset the fall in wholesale trade and retail sales.

The decline was largely expected due to the conditional MCO (CMCO) in October in a bid to contain the resurgence in the number of cases in the country.

Wholesale trade, which makes up most of the distributive trade, fell marginally by 0.9 per cent y-o-y, while retail sales slipped into the negative territory at -1.5 per cent y-o-y.

The distributive sales improved expressively in Q3 with a smaller contraction of 1.9 per cent y-o-y amid significant improvement in GDP in Q3 as private consumption is the biggest contributor to the economy.

“Looking ahead into the fourth quarter, distributive trade performance is anticipated to gradually improve than what we have seen in Q3.

“However, the recovery is likely to be influenced by rising daily Covid-19 cases in the country, which has pushed all but three states into CMCO.

“While we view the current CMCO to be less stringent than the earlier CMCO, it still has the possibility of deteriorating consumer sentiment,” it noted. — Bernama