Looking ahead

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PETALING JAYA: The Malaysian economy may have contracted for the third consecutive quarter, even as the country continues to struggle with the restrictive measures implemented to combat the ongoing Covid-19 pandemic.

Ahead of the gross domestic product (GDP) results to be announced on Thursday, a survey by Bloomberg on economists’ forecasts indicates that the GDP could likely decline by 3.3% year-on-year (y-o-y) in the fourth quarter of 2020.

However, economic contraction is prevalent in the region and Malaysia is not the only country trapped in negative growth territory.

Indonesia reported a 2.19% y-o-y GDP contraction in the October-December 2020 period, while the Philippines’ economy suffered a 8.3% y-o-y decline in GDP.

Meanwhile, Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid expects Malaysia’s GDP to shrink by 3.1% y-o-y in the fourth quarter. Speaking with StarBiz, he said the conditional movement control order (CMCO) during the months of October and November is seen to be taking a toll on economic activities.

The Singapore economy, on the other hand, shrank by 3.8% y-o-y in the fourth quarter, based on advance estimates by the government.

Interestingly, the three neighbouring countries have shown some improvement in economic performance as the GDP slump for Indonesia, the Philippines and Singapore have narrowed in comparison to the third quarter.

However, in the case of Malaysia, economists believe that the fourth-quarter 2020 GDP results may turn worse.

AmBank Research expects a weaker GDP in the October-December 2020 period, with a contraction of 3.2% to 3.5% y-o-y.

In the third quarter of 2020, the domestic economy declined by 2.7% y-o-y, following a sharp plunge of 17.1% y-o-y in the second quarter of last year.

AmBank Research’s weak economic forecast for Malaysia takes into account the 0.3% contraction in industrial production and the 5.2% exports growth in the fourth quarter of 2020.

In addition, the research house also noted that the country’s unemployment rate has marginally increased to 4.8% in the fourth quarter, in comparison to 4.7% in the third quarter of 2020.

The number of unemployed people at the end of the fourth quarter stood at 772,900, compared to 737,500 individuals at the end of third quarter 2020.

AmBank Research said the higher unemployment figure remains a cause of concern, although over 22,000 jobs have been created in the October-December 2020 period.

“(Our GDP projection of -3.2% to -3.5%) is near the market consensus of -3.5%. This should likely bring the full-year 2020 GDP to around -5.5%, ” it said in a note.

According to AmBank Research, the performance of industrial production has been mixed throughout 2020.

Official data from the Statistics Department showed six months of negative annual growth in 2020, mainly as a result of the Covid-19 pandemic and the restrictive measures taken to contain the virus spread.

“Such restrictive measures resulted in disruptions to the global supply chain, demand and employment. On that note, for the full year of 2020, industrial production contracted by 4.2% y-o-y.

“Looking at December’s Industrial Production Index, it improved to 1.7% y-o-y after reporting a contraction for two consecutive months – November (-2.2% y-o-y) and October (-0.5% y-o-y) – from the effects of the restrictive measures.

“On that note, the fourth-quarter industrial production average came in at -0.3% y-o-y versus 0.8% y-o-y in the third quarter of 2020, ” the research house stated.

Meanwhile, Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid (pic above) expects Malaysia’s GDP to shrink by 3.1% y-o-y in the fourth quarter.

Speaking with StarBiz, he said the conditional movement control order (CMCO) during the months of October and November is seen to be taking a toll on economic activities.

“We could see the Index of Services declined 7.1% y-o-y during the final quarter of 2020 from -5.7% in the preceding quarter.

“Sub-index such as retail trade fell further to -3% in the fourth quarter of 2020 from -2.3% previously as restrictions on human mobility have resulted in the weakening of consumer spending.

“On a similar note, import of consumption goods also contracted 0.3% y-o-y in the fourth quarter of 2020 from a 4.6% expansion previously.

“So the main pillar for growth – consumer spending – will drag the overall GDP performance despite improving external trade, ” he said.

Afzanizam also pointed out that the country’s higher jobless rate would keep a lid on GDP performance in the fourth quarter of 2020.

Looking ahead into 2021, he expects the Malaysian economy to grow by 4% this year, much lower than the government’s official forecast of 6.5% to 7.5%.

“In light of the movement restrictions this year and the uncertainty surrounding such a scenario, we think economic activity would remain tepid while sentiment among consumers and businesses would remain guarded throughout the year, ” he said.