Malaysia’s 2020 GDP to Contract 4.5-5.7pct: Economists

KUALA LUMPUR: Economists expect Malaysia’s gross domestic product (GDP) to contract up to 5.7 per cent in 2020, as the recession due to Covid-19 will be proven to be the world’s most devastating economic crisis since the Great Depression.

The Malaysian economy, they said, would continue to show its resiliency after recording a smaller contraction of 2.7 per cent in the third quarter (Q3) of 2020 compared to a sharp decline of 17.1 per cent in Q2.

The smaller Q3 contraction was largely reflected the reopening of the economy from Covid-19 containment measures and better external demand conditions.

Bank Negara Malaysia is scheduled to release the Q4 and full-year GDP numbers on Thursday.

Malaysian Rating Corporation Bhd (MARC) said as a small and open economy, Malaysia had not been spared from the brunt of the twin health and economic crises.

The rating agency expects Malaysia to record the sharpest contractions in both its real GDP growth and public investment in 2020 since the 1998 Asian financial crisis at -5.7 per cent and -19.8 per cent respectively.

“All GDP expenditures are expected to decline in varying degrees, but we project public expenditure to expand by 4.6 per cent year-on-year (Y-o-Y) due to fiscal injections in 2020,” it said in a report.

For 2021, MARC said it expects Malaysia’s GDP growth to be supported by trade as exports outpace imports, albeit lower compared to pre-pandemic levels.

“Exports will continue to gain traction from the upturn in global electronics demand as well as the increase in commodity prices. A rebound by Malaysia’s major trading partners such as China and Singapore will also buttress the country’s near-term growth,” it said.

Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid expects Q4 GDP to come in at -3.1 per cent Y-o-Y.

He said the conditional Movement Control Order (MCO) in October and November was seen to be taking a toll on economic activities.

“We could see Index of Services declined 7.1 per cent Y-o-Y during the final quarter of 2020 from -5.7 per cent in the preceding quarter. Sub-index such as Retail Trade fell further to -3.0 per cent in Q4 2020 from -2.3 per cent previously as restriction on human mobility have resulted in the weakening of consumer spending.”

On a similar note, he said import of consumption goods would have also contracted 0.3 per cent Y-o-Y in Q4 2020 from 4.6 per cent expansion previously.

“So the main pillar for growth – consumer spending – will drag the overall GDP performance despite improving external trade,” Afzanizam told the New Straits Times.

He said in light of the MCO and the uncertainty surrounding such scenario,  Bank Islam had pencilled in a four per cent growth in 2021 as economic activities would remain tepid while sentiments among consumers and businesses would remain guarded throughout the year.

Putra Business School associate professor Dr Ahmed Razman Abdul Latiff said GDP growth for Q4 2020 would be between -2.8 per cent and -3.1 per cent and between -4.5 per cent and -5.0 per cent for the full year.

“Even though retail and wholesale sectors registered a decline in December 2020, other sector such as motor vehicles has shown an increased in term of sales value by 7.4 per cent.

“Total revenue of services sector in Q4 2020 recorded RM435.9 billion, up 1.7 per cent compared to Q3 2020. In addition, manufacturing sales in December 2020 stood at RM124.6 billion, grew 4.5 per cent compared to previous year,” he said.

As for the 2021 GDP projection, Razman said he would stick with the government projection of between 6.5 per cent and 7.5 per cent.

Source: https://www.nst.com.my/business/2021/02/664674/malaysias-2020-gdp-contract-45-57pct-economists

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