KUALA LUMPUR — Malaysia’s economy grew 0.7% in the initial quarter of 2020, well off the 4.5% pace recorded a year earlier, as the impact of the coronavirus pandemic begins to show up in the numbers.
The result, announced on Wednesday, did beat the median forecast of a 1.5% contraction in a Reuters poll of 12 economists. “After a steady expansion in the first two months of the quarter, economic activity came to a sharp downshift with the implementation” of the nationwide coronavirus lockdown, or movement control order, in mid-March, the central bank said in a statement.
The central bank explained that the growth of services and manufacturing sectors moderated, while other sectors contracted and external demand and investments declined. On a quarter-on-quarter, seasonally adjusted basis, the economy shrank by 2%.
Since the numbers only partially reflect the harsh restrictions imposed to control the spread of COVID-19, the bank added that it expects the economy to contract in the second quarter.
Back on March 18, Southeast Asia’s third-largest economy closed its borders and non-essential businesses, and tightly restricted public movements. Though most business sectors were allowed to reopen on May 4, Prime Minister Muyhiddin Yassin last weekend extended the “conditional movement control order” until June 9, maintaining a ban on mass gatherings, interstate travel and other precautions.
The measures have held confirmed coronavirus cases to less than 6,800 with just over 100 deaths as of Wednesday. But they have come at a heavy price.
In an earlier televised address, Muhyiddin had said Malaysia was losing around 2.4 billion ringgit ($553 million) per day during the full lockdown. He estimated the total loss up to May 1 at around 63 billion ringgit and warned of billions of dollars in further losses if the restrictions were not eased for another month.
By one estimate, almost half the working class has faced retrenchment or salary cuts, undermining purchasing power and domestic demand. Fearing the dire economic consequences, the government made the call to reopen many sectors earlier this month, but it remains reluctant to lift the restrictions entirely and risk another coronavirus wave.
At the same time, weak external demand, low crude oil prices and severe disruptions to tourism, aviation and manufacturing have battered the trade-reliant economy.
The central bank is projecting growth for the full year to come in somewhere between 0.5% to -2%.
On Wednesday, the bank said that although it expects a second-quarter contraction due to the extended containment measures at home and abroad, it sees some light ahead.
“As these containment measures are eased and the domestic MCO is lifted, economic activity is expected to gradually improve in the second half of 2020,” it stated, adding that the economy would return to a positive growth trajectory in 2021.
DBS senior economist Irvin Seah — who was nearly on the money with his forecast of minimal 0.8% growth in the first quarter — sees a confluence of negative factors pushing Malaysia toward a recession in 2020.
In a note, Seah said the oil woes were a major factor in the first period, and stressed that the lockdown has weakened consumption and investment. Meanwhile, he warned that exporters are caught between subdued global demand and supply chain disruptions.
Since the coronavirus crisis hit, Kuala Lumpur has been forced to serve up about $60 billion worth of stimulus measures. And last week, the central bank slashed its benchmark interest rate for the third time in as many meetings, bringing it down to a historic low of 2.00% to ease liquidity pressure in the financial markets.