Malaysia’s economy surprisingly expanded in the first three months of the year, but is expected to contract in the second quarter, as the COVID-19 pandemic hits industries across the board.
GDP grew 0.7 percent in the three months through March compared with a year earlier, supported by domestic consumption, Bank Negara Malaysia (BNM) said.
That was the slowest pace since GDP shrank in 2009, and compares with a median estimate of a 1 percent contraction in a Bloomberg survey of economists.
Photo: EPA-EFE
“After a steady expansion in the first two months of the quarter, economic activity came to a sharp downshift” when the lockdown was imposed March 18, the central bank said in a statement yesterday.
“Strict measures to contain the spread of the pandemic will weigh considerably on both external demand and domestic growth,” BNM said.
“While private consumption moderated, it remained resilient, supported mainly by spending on necessities,” it said.
The service sector showed the highest growth at 3.1 percent, while manufacturing grew 1.5 percent, supported by production of rubber and plastic goods as global demand for gloves and other protective equipment surged.
The economy contracted 2 percent on a seasonally adjusted basis compared with the previous three months, BNM said.
The central bank did not update its forecasts from last month — when it said economic growth could range from 0.5 percent to minus-2 percent this year — but said activity would gradually improve in the second half of the year and notch positive growth next year.
Restrictions on movement cost Malaysia’s economy an estimated 63 billion ringgit (US$14.5 billion), according to Malaysian Prime Minister Muhyiddin Yassin, before they were relaxed on Monday last week.
The country remains in a “conditional” lockdown until June 9, but most of the economy has gradually reopened, subject to social distancing rules.
Authorities have moved to shore up the economy, with the BNM cutting the benchmark interest rate by a total of 100 basis points over three straight meetings to 2 percent, and easing banks’ statutory reserve requirements.
The government has announced 260 billion ringgit in stimulus packages, with a focus on preventing job losses and ensuring small companies can continue to be viable.
“We still forecast a significant GDP contraction this year, at minus-5.8 percent,” said Euben Paracuelles, an economist at Nomura Holdings Inc in Singapore. “With that, alongside negative inflation rates, we continue to expect more significant easing by BNM of another 50 basis points in policy rate cuts by July, possibly sooner.”
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