Full impact of MCO to be seen in Q2 GDP numbers – Economists

KUALA LUMPUR —  The economists are a sharp contraction in the country’s second-quarter (Q2) gross domestic product (GDP), due to the challenging global and local economic outlook affected during the testing times of COVID-19.

The Q2 gross domestic product (GDP) will be announced by Bank Negara Malaysia this Friday.

Some even expect up to 13 per cent contraction from a year earlier and the previous quarter after taking into account the substantial year-on-year (y-o-y) decline in industrial output in April and May due to the imposition of the Movement Control Order (MCO).

Malaysia recorded a 0.7 per cent growth in Q1, a decline from 3.6 per cent growth recorded in Q4 2019.

Bank Muamalat Malaysia Bhd economist Izuan Ahmad told Bernama, he expects a high single-digit contraction for Q2, due to weak private consumption as consumer sentiment was adversely affected due to the pandemic and the MCO.

The MCO had reduced consumer spending with unemployment rates jumped to 5.0 and 5.3 per cent in April and May while public and private investments slumped due to poor demand.

External trade performance was also not spared, with export, import and trade volumes in April and May deteriorated which led to a trade deficit of RM3.5 billion in April, the first monthly deficit recorded in over 22 years.

Izuan pointed out that public consumption was seen to be the only contributing factor, as the government announced stimulus packages amounting to RM295 billion.

Meanwhile, Bank Islam Malaysia Bhd’s chief economist Dr Mohd Afzanizam Abdul Rashid said the economy is expected to record a 7.0 per cent contraction in the Q2.

He said the impact from the MCO will be the primary driver for demand and supply shocks as the economy was almost at a standstill.

“Human mobility was extremely limited, while only a handful of industries were allowed to be operational. The impact will be very pronounced during April as the MCO was in full throttle,” he said.

Citing an example, he said the total industry volume for Malaysia’s automotive industry dramatically fell to 141 units, an all-time low in April before rebounding in May and accelerated further in June.

However, the extent of GDP contraction was minimised when the conditional MCO and recovery MCO was implemented in May and June.

“As such, the GDP could have hit its bottom in June and the economy should be in recovery mode in the third and fourth quarter, should the reopening of the economy continue to happen.

“The expansionary fiscal and monetary policies have been the main catalysts to jump-start the economy when it began to be reopened,” he said.

Bank Islam maintains its 2020 GDP target at -1.5 per cent.

Ahead of the Q2 GDP figures announcement by Bank Negara Malaysia this Friday, Affin Hwang Investment Bank Bhd said the country’s real GDP growth to contract sharply by 10.5 per cent versus Q2 2019.

In a research note, it said the full negative impact of the MCO would be reflected in the figures, following the sharp IPI contraction in April and May.

Meanwhile, AmBank (M) Bhd economists highlighted its preliminary estimation which suggests a contraction of between 10 and 13 per cent in Q2.

It noted Q2 is expected to report the worst contraction after a 0.7 per cent growth in Q1 2020.

Similarly, RHB Research expects Q2 to record a sharp contraction compared to the previous quarter, adding that production should improve further in Q3 as demand normalises which could translate to better GDP performance.

So far, it maintains the GDP growth forecast at -4.0 per cent year-on-year for 2020.

— BERNAMA