Malaysian economic growth shrinks sharply in Q2 2020, recovery appears on track

Malaysian economic growth shrank 17.1 percent year-on-year in the second quarter to the lowest level since the fourth quarter of 1998.

On a year-on-year basis, private consumption dropped 18.5 percent, negatively contributing nearly 11 percentage points from the overall GDP growth. With a fall of 28.9 percent year-on-year, investment was also a considerable drag on growth.

Net exports also subtracted 2.7 percentage points from overall GDP, mainly because of the collapse in tourism activity. Merchandise exports fell 14.5 percent year-on-year although the contraction was most pronounced in April.

On the supply side, only the agriculture sector eked out a positive reading of 1 percent year-on-year. The largest fall was in mining and quarrying, followed by manufacturing. Services dropped 16.2 percent year-on-year because of softness in tourism-related sectors such as accommodation.

An economic rebound appears on track, noted ANZ in a research report. Real-time indicators are also quite close to their pre-COVID base line and manufacturing output expanded in June from the previous year. On the external front, with demand for non-commodity exports solid in June and in second half of the year, the rebound in the global tech cycle will possibly help lift Malaysia’s electronic exports.

The effect of fiscal and monetary easing is also expected to become more pronounced in the months ahead. As such, direct fiscal spending measures by the Malaysian government are only about 3 percent of GDP compared with the overall fiscal package of nearly 20 percent of GDP.

“We note that a full-blown recovery which can erase the negative output gap is likely to be a multi-year process. The case for a meaningful withdrawal of fiscal and monetary accommodation does not exist for now”, added ANZ.