Recession may extend into 4Q with CMCO 2.0

MALAYSIA’s gross domestic product (GDP) is poised to contract by 3.5% year-on-year (yoy) in 3Q CY2020 and 1% in 4Q CY2020, thus confirming a technical recession as key sectors contracted except manufacturing, finance and information communications technology (ICT).

According to CGS-CIMB Research, such would be a likely scenario in the GDP data due this Friday (Nov 13) given the successive extensions in the conditional movement control order (CMCO 2.0) timespan and geographical scope versus the research house’s initial assumption that movement restriction would be lifted on Oct 28.

“(Nevertheless), we maintain our expectations of a 7.5% GDP rebound in 2021, driven by supportive fiscal and monetary policy as well as an assumption of normalising economic activities and easing social distancing requirements by mid-2021 which has been bolstered by recent progress on a vaccine breakthrough,” wrote economists Michelle Chia and Lim Yee Ping in an economic update.

Unlike manufacturing, CGS-CIMB Research observed that the services index continued to contract in the last quarter albeit at a slower pace (-5.7% yoy in 3Q CY2020 vs -21.6% yoy in 2Q CY2020) as precautionary social distancing and border closures impacted the hotel, transport, F&B, real estate and arts, entertainment & recreation sectors.

“Bright spots were auto sales and finance which recorded growth while the contraction in retail and wholesale trade narrowed sharply,” opined Chia and Lim.

The drag in the construction sector moderated to -13.1% yoy in 3Q CY2020 (-44.9% yoy in 2Q CY2020) amid a partial restart in projects under strict SOPs.

However, hopes for further improvements in 4Q CY2020 were set back by the re-introduction and extension of targeted CMCO orders from Oct 4 until the most recent deadline of Dec 9.

“A weaker sequential recovery at the year-end may suppress improvements in labour market conditions after the unemployment rate had fallen from a peak of 5.3% in May to 4.6% in September,” projected CGS-CIMB Research. – Nov 10, 2020



Subscribe and get top news delivered to your Inbox everyday for FREE