Malaysia: Economy contracts at sharper-than-expected pace in Q3, weighed on by Covid-19 curbs
November 12, 2021
The economy contracted a heavy 4.5% in annual terms in the third quarter of the year, contrasting the prior quarter’s 16.1% expansion, as surging Covid-19 cases in the period prompted the reinstatement of tough restrictions, hindering activity. Q3’s result marked the worst print in over a year and came in well below market analysts’ expectations of a 1.3% contraction.
The third quarter’s slump was broad-based, as both domestic demand and the external sector weighed on the headline reading. Household spending tumbled 4.2% in year-on-year terms in the quarter, contrasting the 11.7% expansion tallied in the prior quarter. Similarly, capital spending also swung into contraction, plunging 10.8% in the quarter (Q2: +16.5% yoy), as tight restrictions and pandemic-related uncertainty discouraged investment. More positively, public spending was robust in the quarter, albeit easing from Q2, as the government continued to deploy its fiscal tools to counter the negative economic impact of the restrictions (Q3: +8.1% yoy; Q2: +9.1% yoy).
A similar story unfolded in the external sector, with growth in exports of goods and services cooling markedly to 5.1% year-on-year in Q3 from 37.4% in the previous quarter, as rising numbers of new infections in key trading partners suppressed foreign demand. Meanwhile, growth in imports of goods and services also moderated, but to a lesser extent than exports (Q3: +11.7% yoy; Q2: +37.6% yoy). As a result, the external sector deducted a hefty 3.1 percentage points from the headline reading, contrasting the prior quarter’s 1.8 percentage-point contribution.
Similarly, on a seasonally-adjusted quarter-on-quarter basis, the economy contracted 3.6% in the third quarter, deteriorating from the 1.9% decline logged in the second quarter.
Commenting on the growth outlook, analysts at Goldman Sachs expect the recovery to take hold from Q4 onwards:
“As the larger-than-expected output decline in Q3 was likely due to temporary factors such as virus-related capacity restrictions at manufacturing units which are currently in the process of being scaled back, we build back a sharper sequential growth rebound in Q4 and H1 next year. Overall, we now expect real GDP to grow 2.8% in 2021 (vs. 3.1% previously). Going forward, we expect GDP growth to accelerate to 6.6% in 2022 (vs. 6.8% previously), with a strong reopening boost to activity making itself felt over the next few quarters amid tailwinds from higher commodity prices, and a waning but still significant boost from exports.”
Author: Alexandros Petropoulos,