Battered 1Q quarter

  • Economy
  • Wednesday, 13 May 2020

Police and army personnel guarding a blocked-off part of Jalan Othman in Petaling Jaya Old Town after reports of new Covid-19 infections. — Photos: AZHAR MAHFOF/The Star

PETALING JAYA: Malaysia is expected to report its first quarterly economic contraction in 42 quarters or the first since the global financial crisis today.

Economists told StarBiz that the weak private consumption and trade activities, battered by the Covid-19 pandemic and the movement control order (MCO), may have likely pushed the domestic economy into the negative territory in the first quarter of 2020.

They also warned that the growth contraction could turn deeper in the second quarter.

With two consecutive quarters of growth contractions, Malaysia would technically enter a recession for the first time since 2009.

Based on a median forecast of 12 economists polled by Reuters, the country’s gross domestic product (GDP) is projected to decline by 1.5% in January-March 2020 from a year earlier.

Individual forecasts ranged from GDP growth of 0.8% to a decline of 4.2%

The last time the economy dived into a negative territory was in the third quarter of 2009, with a GDP contraction of 1.2%.

According to Alliance Bank chief economist Manokaran Mottain (pic below), the GDP is likely to contract by 3.5% in the first quarter, compared with growth of 3.6% in the fourth quarter of 2019.The country’s economic performance was hit doubly hard in the first quarter due to the MCO that began on March 18 and the plunge in global crude oil prices.

“The beginning of the Covid-19 outbreak early of this year has dampened business and consumer sentiment, with a huge impact on trade and investment activities.

“The manufacturing sector will take the hardest hit, while other sectors are partially affected due to Covid-19 and MCO. The mining sector, which is already declining since last year, will face even greater challenges due to the plunge in oil prices, ” he said.

Alliance Bank chief economist Manokaran MottainAlliance Bank chief economist Manokaran Mottain

On the outlook for the April-June period, Manokaran said the economy could continue to decline 3.5% to 4% more.

“It will be mainly dragged by private consumption (represents around 60% of total GDP), due to escalation of Covid-19 cases globally and unprecedented containment measures taken by respective governments.

“Pre-Raya festive spending will be muted, which many retail businesses are highly dependent for their survival, ” he added.

Meanwhile, Bloomberg economist for Asean Tamara Mast Henderson said Malaysia’s economy may have contracted by 3.3% in the first quarter.

“Merchandise exports picked up in the first quarter, but tourism-related sectors slumped as restrictions by China and other countries to combat the coronavirus made travel difficult.

“Household spending growth likely slowed sharply, no longer supported by a favourable base effect. What’s more, the government locked down the economy in mid-March, ” she said.

On the investments into the country, Henderson stated that Malaysia’s political tensions, culminating in the abrupt resignation of former Prime Minister Tun Dr Mahathir Mohamad in February, have added to the negative investment sentiment.

“Investment was already contracting throughout 2019. The oil price war and sell-off across financial markets in the first quarter likely deepened the decline. There were portfolio outflows of more than US$5.6bil during the period, ” she said.

Despite the bleak consensus projection for the first quarter, Socio-Economic Research Centre executive director Lee Heng Guie expected the GDP growth to remain in the positive territory.

“We estimate GDP to grow marginally by 0.5% in the first quarter, a sharp slowdown from 3.6% in the preceding quarter.

“The economy continued its downward growth trajectory in the first quarter, due to a sharp pull back in domestic demand and subdued exports. Amid cautious sentiments, household spending was restricted in March due to the MCO from March 18, ” he said.

Lee pointed out that all economic sectors were impacted in the January-March period.

Slower external and domestic demand as well as partial production disruption from the first phase of MCO have dampened the manufacturing sector, while the construction sector contracted sharply across-the-board covering residential, non-residential and civil engineering.

“The services sector pulled back sharply to a 2.3% growth in the first quarter from 6.1% in fourth quarter of 2019, owing to declines in demand of services in restaurants and hotels, communication and transportation and wholesale and retail trade. This reflected partly in the first phase of MCO, ” he said.

Meanwhile, the agriculture sector is estimated to decline largely due to lower crude palm oil production.

Commenting on the second quarter, Lee said that the economy “cannot avoid suffering an economic contraction”.

He expected the GDP to decline by between 8.8% and 11% in the second quarter.

“This reflects the full impact of the second, third and fourth phases of MCO, amid the mitigating impact of the Prihatin economic stimulus package, ” he said.

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