Malaysia’s latest economic data offers hope but Covid-19 curbs could threaten recovery

Malaysia’s economy contracted less than expected in the third quarter, shrinking 2.7 per cent from the same period last year, leading Malaysia’s central bank to offer a more positive outlook for growth next year.

The decline was less severe than the 3.2 per cent forecast, which the central bank attributed to the success of Covid-19 containment measures and the gradual reopening of the economy. The decline in domestic demand also slowed and net exports rebounded.

Bank Negara Malaysia said on a quarterly basis, the economy expanded 18.2 per cent in the third quarter compared to a sharp drop of 16.5 per cent in the second quarter.

That was when a nationawide lockdown stalled Malaysia’s economy and caused it to shrink 17.1 per cent from the same period the previous year, the first year-on-year downturn since the 2009 financial crisis.

Yeah Kim Leng, an economist at Sunway University, welcomed the improved third-quarter figures.

“This augurs well for Malaysia’s economic recovery from Covid-19’s economic impact but the concern has now shifted to the final quarter where the conditional movement control order on selected areas – including the populous Klang Valley – is anticipated to have a dampening effect,” he said.

“We may see a slight deterioration in the fourth quarter instead of edging to positive territory.”

Bank Negara Malaysia governor Nor Shamsiah Yunus attributed improved growth to external demand, federal stimulus measures to address inequality and unemployment, and the lockdown being eased.

During the months-long lockdown that began in March, businesses closed and residents were urged to shelter in place. It contained the spread of the coronavirus but it also resulted in job losses, SME closures and depleted households incomes.

The current trends reinforced the central bank’s projection that next year will bring a more holistic recovery, depending on consumption and improvements in local industries such as manufacturing and agriculture.

“The recent resurgence of Covid-19 cases and targeted containment measures could affect the momentum of the recovery in the final quarter of the year,” the bank said in a statement. “However, as most economic sectors have been allowed to continue to operate subject to compliance with standard operating procedures, the impact is expected to be less severe compared to the containment measures during previous periods.

“Going into 2021, growth is expected to recover, benefiting from the improvement in global demand and a turnaround in public and private sector expenditure amid various policy support.”

However, economists said a sustained rebound will require ongoing containment of the coronavirus.

“The availability of a safe and effective vaccine is a key factor to the expected rebound,” Yeah said. “However if infections continue to rise or a vaccine roll-out is delayed, the rebound will be muted.”

Malaysia has signed on for the World Health Organization’s Covax global access programme while also working with Chinese developers.

Malaysia’s Foreign Affairs Minister Hishammuddin Hussein last month indicated the Chinese government had agreed to prioritise Malaysia in receiving a vaccine after meeting his counterpart Wang Yi.

Whether Malaysians will willingly receive the vaccine in the numbers required to contain the coronavirus remains a point of uncertainty.

“Based on my observation of vaccines-related comments made on social media, it seems that some groups of people still perceive China-made products as being of inferior quality,” said Harris Zainul, an analyst at the Institute of Strategic and International Studies.

“This is despite the country making immense progress in science and technology in the 21st century. Related to vaccines, we must also be aware that regardless of where it is produced, it will need to go through the proper procedures and checks by our own authorities and regulators prior to it being distributed and administered here.”