Malaysia's economy shrinks by 17.1 per cent in Q2, worst slump since Asian financial crisis
Hit hard by the impact of the coronavirus pandemic and three-month lockdown, the Malaysian economy contracted by 17.1 per cent in its second quarter on a year on year basis, as the central bank cut its gross domestic product forecast for the year.
This second quarter performance is the weakest since the last quarter of 1998, during the peak of the Asian financial crisis.
After Covid-19 numbers skyrocketed in March, the Malaysian government announced a national movement control order that saw businesses closed, restricted production and decreased consumption, resulting in demand and supply shocks.
Borders were also closed, affecting the tourism industry, which is a key sector in the Malaysian economy.
The central bank on Friday said the nation's 2020 GDP forecast has been revised to between -3.5 per cent and -5.5 per cent, although it is expected to improve to between 5.5 per cent and 8 per cent in 2021.
It also expects a gradual recovery in the second half of 2020 as the economy begins to reopen and external demand improves, although the outlook will continue to be significantly affected by uncertainties surrounding global oil and commodity prices as well as the coronavirus pandemic.
"The economy is poised for a recovery in the second half and will rebound further in 2021," said Bank Negara Malaysia Governor Nor Shamsiah Mohd Yunus.
This outlook was underpinned by the rebound of key indicators such as wholesale and retail trade, industrial production, gross exports, and electricity generation, the governor said.
People walk on the Saloma Link bridge in Kuala Lumpur, Malaysia. Photo: Bloomberg alt=People walk on the Saloma Link bridge in Kuala Lumpur, Malaysia. Photo: Bloomberg
The nation's GDP grew 4.3 per cent in 2019, the slowest pace in a decade due to the impact of the US-China trade war.
For the first quarter of 2020 it recorded growth of 0.7 per cent, maintaining a slow growth pace but defying expectations of a sharp contraction.
The drop in exports as a result of the trade war, followed by the national lockdown and collapse in domestic demand and production, amplified external shocks from weakening global trade.
Economist Yeah Kim Leng of Sunway University said that while the second quarter plunge exceeded forecasts and even the 11.2 per cent contraction during the 1998 financial crisis, it was broadly in line with what other economies that endured two or more months of lockdown had experienced.
"The positive news is that barring a second nationwide lockdown, the economy is recovering as evidenced by the month-to-month improvement in production, consumption and trade indicators as well as other lagging indicators such unemployment," he said.
On Tuesday, neighbouring Singapore reported that GDP fell 13.2 per cent year on year in the second quarter. The economy fell 42.9 per cent from the previous three months on an annualised and seasonally adjusted basis, compared with the government's initial estimate of a 41.2 per cent contraction.
Meanwhile, Malaysia has also lifted an earlier freeze on the hiring of foreign workers in some sectors which was meant to protect jobs for locals.
In a statement late on Thursday, the Human Resources Ministry reversed the limit on foreign labour in the construction, agriculture and plantation sectors.
"There were some employers who claim to still need a number of foreign workers and urged the government to withdraw the freeze on recruitment of new foreign workers," said Minister Saravanan Murugan.
This article originally appeared on the South China Morning Post (SCMP).
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