MAY 15 — Better than what most economists expected, the Malaysian economy grew marginally at 0.7 percent year-on-year in the first quarter of 2020 (1Q20). However, this was a sharp deceleration from the 3.6 per cent expansion in 4Q19 and the slowest pace registered since the Global Financial Crisis (GFC).
On quarter-on-quarter basis, the economy declined by 2 per cent compared with a growth of 0.6 per cent in the preceding quarter.
As comparison within the Asean region, other economies appeared to be in the slowing trend too. Singapore’s advance Gross Domestic Product (GDP) dropped 2.2 per cent while Indonesia’s slowed to the weakest pace since 2001 at 3 per cent.
The outcome for Malaysia is certainly not surprising as the pandemic and the movement control order (MCO) beginning March 18 or now known as the conditional MCO (CMCO) have taken a toll on the economy, as noted by Bank Negara Malaysia (BNM) in its press statement.
Looking at the industry level, the sectors either recorded subdued expansion or contracted relatively to the previous quarter:
1. Services — from 6.2 to 3.1 per cent;
2. Manufacturing — from 3.0 to 1.5 per cent;
3. Mining and quarrying — from -3.4 to -2.0 per cent;
4. Construction — from 1.0 to -7.9 per cent; and
5. Agriculture — from -5.7 to -8.7 per cent.
For expenditure components, the breakdown of GDP are as follows:
1. Private consumption — from 8.1 to 6.7 per cent;
2. Government consumption — from 1.3 to 5.0 per cent;
3. Gross capital fixed formation – from -0.7 to -4.6 per cent;
4. Exports — from -3.4 to -7.1 per cent; and
5. Imports — from -2.4 to -2.5 per cent.
The restriction on most economic activities since the beginning of MCO has resulted in an economic loss worth RM2.4 billion per day, according to Prime Minister Tan Sri Muhyiddin Yassin.
To prevent further damage to the economy particularly businesses, government has decided to lift restrictions on most of the economic sectors beginning May 4 alongside the establishment of standard operating procedures (SOPs).
According to the premier, should the stricter MCO extends, the total loss would be close to RM100 billion.
Nonetheless, our economy is not out of the woods yet so long as the vaccine is absent and the CMCO is in force until June 9. Despite the ongoing distribution of RM260 billion stimulus package to the businesses and rakyat, many still feel the pain.
In 1Q20, the unemployment rate rose to 3.5 per cent (3.2 per cent in 4Q19), with a larger number of unemployed at 546,600. Those who are vulnerable in the job market were the ones in the age group of 15-30 years (6.9 per cent).
Headline inflation also fell sharply to 0.2 per cent year-on-year in March (1.3 per cent in February), mainly due to decreased transportation costs helped by low crude oil prices and less spending on clothing and footwear. For the whole first quarter, inflation was muted at 0.9 per cent.
Low inflation also complemented the slump in consumer sentiment index released by the Malaysian Institute of Economic Research (MIER) — from 82.3 in 4Q19 to 51.1 in 1Q20.
This is only the first quarter. Subsequently, second quarter is also projected to be gloomy given the extended containment measures.
Judging from the early indicator that is available for 2Q20, disruption in supply chains have badly impacted manufacturing activities with IHS Markit Purchasing Managers’ Index (PMI) slipping to 31.3 in April from 48.4 in March.
According to most manufacturing firms, the poorer performance at the start of second quarter was due to domestic implementation of movement restrictions as well as in the export markets to mitigate the virus spread. Some also stated that reduced output was affected by lack of manpower and low intakes of new work.
Earlier this month, BNM slashed the benchmark interest rate by another 50 basis points from 2.50 percent to 2.00 percent, matching GFC-lows. Cumulatively, the central bank has proceeded with 100 basis point cut this year.
Due to the severity of the pandemic and the uncertainty on economic outlook, more rate cuts are possible.
Although efforts to revive the economy have started to show, recovery process would vary across sectors which are domestic-oriented or external-oriented.
Malaysia being an open economy that relies on trade to support the economy, domestic recovery does not guarantee the well-being of external economies. This is on the back of pessimistic global condition - weak external demand, low oil prices and disruptions in businesses caused by lockdowns.
Unemployment is already expected to surpass government’s initial target of 4 per cent given the business closures during the MCO.
Society behaviour towards the current environment could also be the determinant of recovery speed. How we practise the new norms in terms of social distancing to prevent new wave of infections and how spending have changed throughout this trying time. These too would affect the economy going forward.
As noted by the officials, the economy would only begin experiencing recovery beginning second half of 2020 onwards but the materialisation would be dependent on the adequacy of government’s next agenda — Economic Recovery Plan.
* Nur Sofea Hasmira Azahar is research analyst at think tank EMIR Research.
** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.
