Economy shows slowest growth since 2009 on lockdown curbs

The country has been on a partial lockdown since March 18 as efforts continue to contain the Covid-19 pandemic.

KUALA LUMPUR: The economy unexpectedly expanded in the first three months of the year but is expected to contract in the second quarter, as the coronavirus pandemic hits industries across the board.

Gross domestic product (GDP) grew 0.7% in the three months through March compared to a year earlier, according to the central bank. That was the slowest pace since GDP shrank in 2009, and compares with a median estimate of a 1% contraction in a Bloomberg survey of economists.

“After a steady expansion in the first two months of the quarter, economic activity came to a sharp downshift” when the lockdown was imposed March 18, Bank Negara Malaysia (BNM) said in a statement today.

“Strict measures to contain the spread of the pandemic will weigh considerably on both external demand and domestic growth.”

The economy contracted 2% on a seasonally adjusted basis compared to the previous three months, the central bank said. Activity will gradually improve in the second half of the year, with the economy expected to notch positive growth in 2021, the bank added.

The country’s benchmark stock index extended gains to 1.3% after the data, set for the steepest gain since April. The ringgit fell 0.2% to 4.3370 per dollar.

Costly restrictions

Restrictions on movement cost the economy an estimated RM63 billion (US$14.5 billion), according to Prime Minister Muhyiddin Yassin, before they were relaxed May 4. The country remains on “conditional” lockdown until June 9 but most of the economy has gradually reopened, subject to social-distancing rules.

“Going forward, if the reopening of the economy continues to take hold, we could expect a respectable recovery in the second half, especially during the final quarter of this year,” said Mohd Afzanizam Abdul Rashid, chief economist at Bank Islam Malaysia.

“I think the government should accelerate the infrastructure projects as soon as possible to crystallise the economic multiplier effects.”

Authorities have moved to shore up the economy, with the central bank cutting the benchmark interest rate by a total of 100 basis points over three straight meetings to 2%, and easing banks’ statutory reserve requirements. The government has also announced RM260 billion in stimulus packages, with a focus on preventing job losses and ensuring small companies can continue to be viable.

The strain on the economy was apparent in the country’s March data, with the jobless rate surging to the highest in a decade and private spending contracting for the first time since the data series began in 2013. Indexes of manufacturing, mining and electricity output all contracted as factories began closing or operating at minimal capacity.

More cuts

“Definitely the print came much better than what the street and myself expected,” said Wellian Wiranto, an economist at Oversea Chinese Banking Corp in Singapore.

“Overall, the GDP beat should dampen the expectation for BNM to cut rates in the coming months.”

Consumer prices declined in March for the first time in more than a year, dropping 0.2% from a year earlier. That’s within the central bank’s estimate for inflation to average -1.5% to 0.5% this year on lower global oil and commodity prices.

Average headline inflation is likely to turn negative this year, due mainly to projections of substantially lower global oil prices, the bank said.

“We still forecast a significant GDP contraction this year, at -5.8%,” said Euben Paracuelles, an economist at Nomura Holdings Inc in Singapore.

“With that, alongside negative inflation rates, we continue to expect more significant easing by BNM of another 50 bps in policy rate cuts by July, possibly sooner.”

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