GDP slows down to 0.7% in 1Q, Bank Negara sees contraction in 2Q


  • Economy
  • Wednesday, 13 May 2020

“The Malaysian economy is expected to contract in the second quarter. This reflects the longer duration of containment measures both globally and domestically, " Bank Negara said.

KUALA LUMPUR: Malaysia's economy slowed down to 0.7% in the first quarter as it was significantly impacted by the measures to contain the Covid-19 pandemic but Bank Negara Malaysia expects the adverse effects to be seen more in the second quarter.

The slower growth was a surprise as economists were expecting a 1.5% decline, based on a median forecast of 12 economists polled by Reuters.

“On the supply side, the services and manufacturing sectors moderated while the other sectors contracted. In terms of expenditure, external demand and investments declined, while private consumption growth moderated, ” Bank Negara Malaysia said in a statement on Wednesday.

“On a quarter-on-quarter seasonally-adjusted basis, the economy contracted by 2%.” In the fourth qarter of 2019, the economy expanded by 3.6%.

However, 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 Malaysian economy is expected to contract in the second quarter. This reflects the longer duration of containment measures both globally and domestically.

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

“As these containment measures are eased and the domestic MCO is lifted, economic activity is expected to gradually improve in 2H 2020, ” it said.

Bank Negara said the sizable fiscal, monetary and financial measures and progress in transport-related public infrastructure projects will provide further support to growth in 2H 2020.

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

On the 1Q performance, it said on the supply side, the services and manufacturing sectors moderated while the other sectors contracted.

In terms of expenditure, external demand and investments declined, while private consumption growth moderated.

“The moderation reflected the impact of measures taken both globally and domestically to contain the spread of the Covid-19 pandemic. Domestically, it mainly reflected the implementation of the Movement Control Order (MCO), ” it said.

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 movement restrictions including international and domestic travel restrictions, limited work and operating hours and mandatory social distancing significantly curtailed economic activity.

Production was only permitted for essential goods and services and the industries integral to their supply chains. Labour-intensive and consumer-oriented sectors were also impacted.

During 1Q, headline inflation remained modest at 0.9%, mainly reflecting the lapse in the remaining impact from Sales and Services Tax (SST) implementation and lower price-volatile inflation. Core inflation moderated slightly to 1.3%.

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GDP , Covid-19 , pandemic , contraction

   

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