Economy shrank 2.8% in 4Q and 5.4% in 2020, RAM says

Police, army and Rela personnel manning a roadblock along the Tun Dr Lim Chong Eu Expressway during the movement control order (MCO2.0) in George Town, Penang. ( February 1, 2021 ). - CHAN BOON KAI/The Star

KUALA LUMPUR: Malaysia’s economy is estimated to have contracted by 2.8% in 4Q 2020, amid the restrictions imposed under the conditional movement control order (CMCO), according to RAM Ratings.

It said on Tuesday, this will be the third consecutive quarter of contraction in 2020, leading to a 5.4% contraction for the year, compared with the previous estimate of -5.3%.

However, it said the contraction in 4Q 2020 was expected to be only slightly more pronounced than in the preceding quarter (3Q 2020: -2.7%; 2Q 2020: -17.1%).

“This is underscored by various supportive policies and the fact that most sectors continued to operate during the CMCO.

“We expect the manufacturing sector to be the main growth driver in 4Q 2020, with a 3.2% expansion (3Q 2020: 3.3%). The sector’s capacity – as indicated by the Industrial Production Index - remained fairly stable during the quarter, ” it said.

However, it expected all other sectors to post negative growth. It pointed out that retail sales – one of the hardest hit sectors – shrank by -2.9% in 4Q 2020 (3Q 2020: -2.2%).

As for the current quarter, 1Q 2021, RAM said the domestic economy was facing further headwinds in 1Q 2021, with the imposition of MCO 2.0.

“Our preliminary estimate has GDP growth sharply decelerating to -5.6% in 1Q 2021, ” it said, pointing out that much of the drag on growth is envisaged to stem from the services sector due to tighter restrictions.

“With MCO 2.0 now extended until Feb 18, we have revised our full-year GDP forecast from 5.8% to 5.5%. Every additional day of MCO extension is estimated to trim 0.04 percentage points (or about RM500mil to RM600mil) off growth this year, ” RAM said.