KUALA LUMPUR, May 13 — Malaysia’s economy grew moderately at 0.7 per cent in the first quarter of 2020 from 4.5 per cent in the same quarter last year, as gross domestic product growth was affected by the Covid-19 pandemic and the implementation of the movement control order (MCO).

Bank Negara Malaysia (BNM) 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.

"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,” the central bank said in a statement, issued in conjunction with the release of Malaysia’s Q1 2020 GDP performance today.

During the quarter, BNM said headline inflation remained modest at 0.9 per cent, mainly reflecting the lapse in the remaining impact from Sales and Services Tax implementation and lower price-volatile inflation, while core inflation moderated slightly to 1.3 per cent.

On the exchange rate, the ringgit depreciated by 4.9 per cent against the US dollar during the quarter under review, following large non-resident portfolio outflows amounting to RM26.2 billion as global risk aversion intensified, in line with regional countries amid uncertainties surrounding the duration and severity of the pandemic and its economic impact.

"As a result of the ongoing risk aversion in global financial markets and demand for safe haven assets, Malaysia continued to experience non-resident portfolio outflows and the ringgit depreciated by 5.8 per cent against the US dollar in 2020 (as at 12 May).

"As this environment of uncertainty will persist in the near-term, capital flows and exchange rate volatility is expected going forward,” it said.

Meanwhile, it said net financing expanded at a sustained pace of 4.7 per cent on an annual basis, supported by higher growth in outstanding loans.

BNM said since the Special Relief Facility (SRF) was made available on March 6, the participating financial institutions (PFIs) and BNM have worked swiftly to implement the SRF to ensure that SMEs benefit quickly, whereby as at May 4, the PFIs have approved more than 20,000 applications amounting to about RM10 billion.

Demand has been overwhelming with the earlier announced RM5 billion SRF allocation taken up quickly and would directly benefit more than 9,000 SMEs across Malaysia, preserving more than 200,000 jobs.

"In view of the strong demand, BNM has upsized the SRF by another RM5 billion to cater for all of the applications approved by PFIs as at May 4, bringing the total final allocation to RM10 billion,” it said.

In the first quarter of this year, the central bank said financial institutions have collectively disbursed RM62 billion financing to SMEs, of which RM48 billion for working capital purposes.

Moving forward, BNM said the Malaysian economy is expected to gradually pick up in the second half of this year as containment measures are eased and the domestic MCO is lifted.

"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, adding that the average headline inflation in 2020 is likely to turn negative due mainly to projections of substantially lower global oil prices. — Bernama