Malaysia’s economy contracted by 17.1% in Q2 2020 – a worse than expected outcome and the worst contraction since the 1998 Asian Financial Crisis, where the nation’s economy shrank 11.2% in the fourth quarter.
Analysts have expected a sharp decline in the country’s GDP for Q2 2020, a period where the nation had been in multiple phases of lockdown or Movement Control Orders (MCO) in a bid to stem the spread of Covid-19. However, the contraction is worse than many analysts’ predictions, from MIDF’s -7.2% to even Bloomberg’s more pessimistic -10.2%. Quarter-on-quarter, the economy shrank by 16.5%.
In fact, Malaysia’s Q2 2020 economic contraction was even worse than neighbouring countries; Singapore’s Q2 2020 was recorded at -12.6% year-on-year, while the Philippines also recently announced a -16.5% growth year-on-year.
The major production sectors were hit hard in Q2 2020, and some substantially worse than others. The construction and mining and quarrying sectors were especially hit hard in the last quarter, shrinking 44.5% and 20.0% respectively. The services industry, which makes up 57.8% of the nation’s economy, shrank 16.2%. The only sector that surprisingly recorded growth was in agriculture, with a positive 1.0% growth.
“The government’s main priority was to ensure the health and safety of the Malaysians. The implementation of the MCO, Conditional MCO and Recovery MCO in containing the widespread of Covid-19 pandemic have affected the overall Malaysia’s economic activities, ” Datuk Seri Dr Mohd Uzir Mahidin, the Chief Statistician of Malaysia said.
As a result, the economy contracted considerably but the country has largely contained the spread of Covid-19, which has allowed the country to gradually re-open the economy. The two economic stimulus packages, namely Prihatin and Penjana, have also softened the economic blow – and will likely prevent a technical recession from occurring in Malaysia (which is defined as two consecutive quarters of negative growth in GDP).
Both the Department of Statistics Malaysia (DoSM) and Bank Negara Malaysia are expecting a gradual recovery of the Malaysian economy in the second half of the year. In fact, since the Conditional Movement Control Order (CMCO) was enforced, there have already been indicators of a rebound in key economic indicators.
As such, BNM is forecasting the Malaysian economy to grow between -3.5% to -5.5% in 2020, before rebounding into positive territory in the range of 5.5% to 8.0% in 2021. The central bank, however, warned that the economic outlook will still be affected by global oil and commodity prices in addition to developments around Covid-19.