Malaysia: Economy contracts at softer rate in Q1, surprising on the upside
GDP fell 0.5% year-on-year in the first quarter, moderating significantly from the 3.4% contraction logged in the fourth quarter of last year. The print beat market expectations of a 1.9% year-on-year drop.
The outturn reflected a broad-based improvement. Household spending declined at a more moderate pace of 1.5% year-on-year in the first quarter, which marked the best reading in a year (Q4 2020: -3.5% yoy). Moreover, fixed investment dropped at a milder rate of 3.3% in Q1 compared to the 11.8% plunge tallied in the prior quarter. Meanwhile, government consumption gained further steam, expanding 5.9% in Q1 (Q4 2020: +2.4% yoy), as the government deployed further stimulus to support the economy.
On the external front, exports of goods and services rebounded in Q1, growing 11.9% (Q4 2020: -2.1% yoy). Imports of goods and services also bounced back in the quarter, growing 13.0% (Q4 2020: -3.3% yoy). As a result, the external sector’s contribution to the headline reading was flat in Q1, below the prior quarter’s positive contribution.
On a seasonally-adjusted quarter-on-quarter basis, economic growth rebounded in Q1, with GDP increasing 2.7% and contrasting the previous period’s 1.5% fall.
Looking ahead, the economy is expected to return to growth this year on the back of gradually firming domestic demand. The external sector should also strengthen, buoyed by electronic and electrical products, as well as oil exports. However, on 10 May, Prime Minister Muhyiddin Yassin announced the reintroduction of a movement control order amid rising Covid-19 cases. The new measures are scheduled to remain in place until 7 June and are bound to weigh on activity in Q2.
Commenting on the impact of the new restrictions and the growth outlook, Prakash Sakpal, senior Asia economist at ING, said:
“Undoubtedly, the tighter restrictions will cause a significant dent to the economy in the current quarter, which leads us to cut our GDP growth forecast for 2Q21 from 16.7% YoY to 13.9% YoY. The double-digit year-on-year growth mainly stems from a huge 17% YoY plunge a year ago rather than any underlying recovery. We maintain our full-year 2021 growth forecast of 5.3% YoY, which is below the Central Bank’s (Bank Negara Malaysia) 6% to 7.5% forecast range for this year.”