Malaysia: Economy rebounds strongly in Q2
August 13, 2021
The economy rebounded strongly in the second quarter, with GDP swinging to a 16.1% year-on-year expansion from a 0.5% contraction in the first. The print beat market analysts’ expectations of a softer increase. However, the reading was flattered by a favorable base effect.
The upturn reflected a broad-based improvement. Household spending jumped 11.6% over the same period a year prior, contrasting the 1.5% decline in the first quarter. The expansion in private consumption came despite movement restrictions in the quarter amid the resurgence of Covid-19. Fixed investment expanded 16.5% year-on-year in the three months ending in June, up from the first quarter’s 3.3% drop. This marked the first quarter of growth after nine consecutive quarters in which capital expenditure declined. Government consumption growth accelerated from a 5.9% increase in the first quarter to a 9.0% expansion in the second, driven by higher spending on supplies and services related to health.
Healthier foreign demand dynamics amid softer global lockdown measures support the external sector. Exports of goods and services jumped to a 37.4% annual expansion, up from the first quarter’s 11.9% increase. Imports of goods and services growth also firmed, rising to 37.6% in the second quarter from 13.0% in the first.
Less positively, underlying momentum lost steam due to resurgence of the virus and renewed restrictions. On a seasonally-adjusted quarter-on-quarter basis, the economy contracted 2.0% in the second quarter, contrasting the 2.7% expansion logged in the first quarter.
Looking ahead, annual growth should remain solid in the second half of the year on firming domestic demand, while the external sector is set to benefit from strengthening foreign demand buoyed by electronic and electrical products demand. Oil exports should also fuel the external sector. However, underlying momentum will remain frail amid the persistence of the virus and lingering restrictions as a consequence.
Commenting on the outlook, economists at ANZ added:
“Headline GDP growth was purely a statistical play on base effects. The sequential momentum was a focus, which affirms GDP contracted in Q2. The frequent spike in cases poses a threat to economic recovery. Nonetheless, the focus is on sealing the progress on vaccination and gradual reopening. It is likely that growth bottomed out in Q2 and the economy will likely gain modest sequential momentum from Q4 21.”
Author: Jan Lammersen, Economist