Malaysia posts slowest growth since 2009 of 0.7 per cent but beats forecast of Q1 contraction

Malaysia's economy defied expectations of a sharp contraction and registered growth of 0.7 per cent in the first quarter, government data released on Wednesday showed.

However, it was the slowest pace of growth since 2009 and worse may lie ahead, as Malaysia is expected to be hard hit should the coronavirus pandemic lead to a global recession.

The 0.7 per cent growth outperformed the median forecast, from a poll of 12 economists by Reuters, of a 1.5 per cent contraction in the January-March quarter from a year earlier.

Bank Negara Malaysia, the central bank, said the economy contracted by 2.0 per cent on a seasonally adjusted basis compared to the previous quarter.

Customers at a wet market in downtown Kuala Lumpur. Photo: AP alt=Customers at a wet market in downtown Kuala Lumpur. Photo: AP

Nonetheless, the central bank said moderation in growth came on the back of "measures taken both globally and domestically to contain the spread of the Covid-19 pandemic". It said growth was impacted after the government on March 18 initiated partial lockdown measures " known locally as the Movement Control Order (MCO) " to curb the surging number of infections.

"After a steady expansion in the first two months of the quarter, economic activity came to a sharp downshift with the implementation of the MCO on March 18, 2020," Bank Negara said.

"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 bank said it expected a contraction in the April-June quarter, but added that economic activity will likely improve in the second half of the year as governments begin to ease lockdown measures.

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

The government previously forecast the economy to grow between -0.5 to 2 per cent this year but economists have been less optimistic.

The Bank of America Merrill Lynch last week predicted a contraction of 8.0 per cent, meaning Southeast Asia's third-largest economy could endure a more dramatic downturn than during the Asian Financial Crisis in the late 1990s.

The second quarter will take into account the loss of business from the nation's lockdown, with real-time economic bellwethers such as measures of industrial production indicating negative growth.

"The extent of the damage will really start to show up in the second quarter, which will be further compounded by both lower oil prices and the effects of that on the mining sector and commodity exports, and lockdown in several major global economies which also started at the end of March, which further saps external demand," analyst Calvin Cheng of the Institute Of Strategic & International Studies said.

Bank Negara Malaysia governor Nor Shamsiah Mohd Yunus said a revised GDP forecast would be revealed in the second half of the year.

"For Malaysia it is challenging to predict a meaningful forecast range as there are far too many global and domestic uncertainties," she said during a virtual press conference.

Industries such as tourism, retail and aviation are expected to endure continued disruption after the MCO " initially scheduled to end this week " was extended until June 9.

Growth was also affected by a decline in transport and storage services and reduced retail trade, wholesale trade and food and beverage services, analyst Brian Tan of Barclays Bank, Singapore said.

"For the full year, we maintain our forecast for the GDP to contract by 8.5 per cent, well below Bank Negara Malaysia's 2020 GDP growth forecast range of between -2.0 per cent and 0.5 per cent," he said, adding that the extension of the lockdown would slow any economic recovery in the second half of the year.

Malaysian Prime Minister Muhyiddin Yassin. Photo: dpa alt=Malaysian Prime Minister Muhyiddin Yassin. Photo: dpa

Job losses are likely to be a major focus in coming weeks after the latest official data showed the unemployment rate at 3.9 per cent during March " the highest in 10 years and a 17.1 per cent increase from a year earlier.

The 260 billion ringgit (US$60 billion) stimulus package unveiled in three stages raised hopes of relief for citizens and businesses but observers say more needs to be done to offset the toll on the labour market.

"The sizeable fiscal, monetary and financial measures and progress in transport-related public infrastructure projects will provide further support to growth in [the second half] of 2020," Bank Negara said.

Prime Minister Muhyiddin Yassin's administration " in power since March following a political coup " has been preparing for a closely watched parliamentary sitting next week, when the opposition hopes to move a no-confidence motion against the premier.

This article originally appeared on the South China Morning Post (SCMP).

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