The contraction in the second quarter for the Malaysian economy was the sharpest for the country since the Asian financial crisis more than two decades ago.
Based on that performance, the central bank of the country sharply downgrading its outlook for the economy for the current year.
The central bank of the country said that in the second quarter compared, shrinkage of 17.1 per cent year on year was reported for the economy which marked the worst performance of the country since the fourth quarter of 1998. Analysts had forecast a contraction of 10 per cent in the economy for the aforesaid quarter.
The novel coronavirus pandemic had severely dented the export of the country – its most predominant revenue source, shows data. The pandemic severely disrupted the supply china which brought down exports. At the same time, the extended lockdown imposed to prevent the spread of the pandemic also suppressed consumer spending. The country’s central bank now forecasts a contraction of between 3.5 per cent and 5.5 per cent for the economy for the current year compared to its previous forecast of a shrinking of between 0.5 per cent and 2 per cent.
“The decline in output was massive,” said Mohd Afzanizam Abdul Rashid, chief economist at Bank Islam Malaysia Bhd. “It clearly shows that the pandemic has resulted the economy to be at a standstill.”
Despite Malaysia being relatively successful in containing the spread of the pandemic, it apparently has not helped to uphold its growth. The contraction in the second quarter is so far the largest year on year slump in growth for the region even though the restrictions because of the pandemic imposed in the country were relatively less compared to other countries of the region. The economy was affected by a slump in investments, export receipts and the government’s response because of the sharp slump in oil prices and political turmoil.
However economists noted some signals of a recovery for the economy at the flag end of the quarter. In June, there was a small but positive growth in country’s manufacturing production and sales while rate of unemployment dropped to 4.9 per cent.
“Activity has picked up following an easing in lockdown measures from May onwards, and we expect a solid post-lockdown rebound in growth” in the third quarter, Oxford Economics economist Sian Fenner wrote in a research note. “That said, the speed of the recovery will likely ease back after that amid depressed global trade, high unemployment and weak investment.”
Malaysia’s central bank Governor Nor Shamsiah Mohd Yunus said in a briefing that she was “cautiously optimistic that the worst is behind us.”
The realization that the pandemic had a bigger impact on global demand than previously assumed and extension of the lockdown in the country caused the bank to slash its full-year growth forecast.
“Should there be a second outbreak, there is room for targeted policy measures to complement the ones implemented earlier,” the governor said. “For example, the bank’s policy levers can be expanded or extended within this mandate.”
(Adapted from AlJazeera.com)