Malaysia’s Economy Shrinks At Slower Pace In Q3

Malaysia’s Economy Shrinks At Slower Pace In Q3

November 20, 2020

Malaysia’s economy contracted at a slower pace in the third quarter due to the relaxation of the Covid-19 containment measures and better global demand, official data revealed Friday.

Gross domestic product fell 2.7 percent on a yearly basis in the third quarter, following a record 17.1 percent decline seen in the second quarter, the Department of Statistics reported. GDP was forecast to fall 3.2 percent.

Quarter-on-quarter, the economy registered a sharp growth of 18.2 percent, in contrast to a 16.5 percent fall seen in the second quarter.

The central bank said the economy is expected to improve further going into 2021 in tandem with better global demand and domestic policy support.

“While a second wave of infections will weigh on growth in the fourth quarter, we don’t think it will be long before the recovery is back on track,” Alex Holmes, an economist at Capital Economics, said.

However, if Malaysia is able contain the second wave, as others in the region have been successful in doing, the economic impact should be relatively small and brief, the economist noted.

The production-side breakdown of GDP showed that the slower annual fall in GDP was driven by the recovery in manufacturing.

The manufacturing sector grew 3.3 percent, in contrast to an 18.3 percent fall in the preceding quarter. At the same time, the service sector posted a smaller decrease of 4 percent after easing 16.2 percent in the previous quarter.

Farm output was down 0.7 percent and construction output decreased 12.4 percent in the third quarter.

On the expenditure-side, private final consumption expenditure slid 2.1 percent, while government spending expanded 6.9 percent. Gross fixed capital formation decreased 11.6 percent.

Exports of goods and services decreased 4.7 percent and imports were down 7.8 percent.

In the third quarter, headline inflation registered a smaller negative at -1.4 percent, due mainly to the higher domestic retail fuel prices, in line with the recovery in global oil prices. Core inflation moderated slightly to 1.0 percent.

Reflecting the higher projected global oil prices, headline inflation is forecast to average higher next year, the central bank said. Underlying inflation is projected to be subdued amid spare capacity in the economy.

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