Malaysian economy: GDP growth 0.7% in 1Q, lowest since 2009

THE country’s economy registered a 0.7% gross domestic product (GDP) growth in the first quarter of 2020, marking its lowest growth recorded since the third quarter of 2009 during the Global Financial Crisis when the economy slumped by -1.1%.

According to Bank Negara Malaysia (BNM) the country recorded a GDP growth of 3.6% in the fourth quarter of 2019.

Economists had earlier projected that the first quarter 2020 GDP would come in at 1%.

The central bank expected the global and Malaysian economic outlook for 2020 to be significantly impacted by the Covid-19 pandemic as strict measures to contain the spread of the pandemic weigh considerably on external demand and domestic growth.

“The Malaysian economy is expected to contract in the second quarter. This reflects the longer duration of containment measures both globally and domestically. As these containment measures are eased and the Movement Control Order (MCO) is lifted, economic activity is expected to gradually improve in 2H20.

“The sizable fiscal, monetary and financial measures and progress in transport-related public infrastructure projects will provide further support to growth in 2H20. In line with the projected improvement in global growth, the Malaysian economy is expected to register a positive recovery in 2021,” said governor Datuk Nor Shamsiah Yunus.

Movement restrictions including international and domestic travel restrictions, limited work and operating hours and mandatory social distancing significantly curtailed economic activity. Production was only permitted for essential goods and services and the industries integral to their supply chains. Labour-intensive and consumer-oriented sectors were also impacted.

During the quarter, headline inflation remained modest at 0.9%, mainly reflecting the lapse in the remaining impact from the sales and services tax (SST) implementation and lower price-volatile inflation. Core inflation moderated slightly to 1.3%.

In the first quarter of 2020, the ringgit depreciated by 4.9% against the US dollar, following large non-resident portfolio outflows amounting RM26.2 bil as global risk aversion intensified.

As a result of the ongoing risk aversion in global financial markets and demand for safe-haven assets, Malaysia continued to experience non-resident portfolio outflows and the ringgit depreciated by 5.8% against the US dollar in 2020 (as at May 12).

As this environment of uncertainty will persist in the near term, capital flows and exchange rate volatility are expected going forward.

Net financing expanded at a sustained pace of 4.7% on an annual basis, supported by higher growth in outstanding loans. Growth in outstanding business loans increased, while outstanding household loan growth declined. Nonetheless, demand for both business and household loans slowed in comparison to the previous quarter.

“Since the Special Relief Facility (SRF) was made available on March 6, the participating financial institutions (PFIs) and BNM have worked swiftly to implement the SRF, to ensure that SMEs benefit quickly.

“As at May 4, the PFIs have approved more than 20,000 applications amounting to about RM10 bil,” added Nor Shamsiah.

Demand has been overwhelming, and as a result, the earlier announced RM5 bil SRF allocation has been quickly taken up that will directly benefit more than 9,000 SMEs across Malaysia, and preserve more than 200,000 jobs.

In view of the strong demand, BNM has upsized the SRF by another RM5 bil to cater to all of the applications approved by PFIs as at May 4, bringing the total final allocation to RM10 bil. – May 13, 2020

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