Malaysia: GDP drops at a less pronounced pace in Q3
November 13, 2020
GDP slid 2.7% year-on-year in Q3, falling at a significantly softer pace than Q2’s pandemic-induced plunge of 17.1%, amid the easing of Covid-19-associated restrictions and firming foreign demand. Moreover, Q3’s reading beat market analysts’ expectations of a 3.2% contraction.
Private consumption declined at a softer rate of 2.1% year-on-year in Q3, following the 18.5% dive in Q2. Similarly, fixed investment fell at a more moderate pace of 11.6% in Q3, up from the 28.9% contraction recorded in the prior quarter. In contrast, public spending growth picked up, expanding 6.9% in Q3 (Q2: +2.3% yoy), as the government ramped up fiscal stimulus measures to mitigate the harsh impact of the pandemic.
On the external front, exports of goods and services dropped at a softer rate of 4.7% in Q3 (Q2: -21.7% yoy), largely attributed to a rebound in goods, while services exports lagged behind due to still-downbeat tourist activity. Additionally, imports of goods and services fell at a less pronounced pace of 7.8% in Q3 (Q2: -19.7% yoy). As a result, the external sector contributed positively to overall GDP, after subtracting from it in the previous quarter.
On a seasonally-adjusted quarter-on-quarter basis, GDP surged 18.2% in Q3, (Q2: -16.5% s.a. qoq), marking the best reading in at least five years.
Looking ahead, the economy is expected to return to growth next year, as foreign demand in major trading partners and domestic activity recover. That said, risks to the outlook still persist: The course of the pandemic and the potential tightening of restrictions, the recovery of oil prices are key factors to watch ahead.
Commenting on the outlook ahead, analysts at Nomura note:
“Despite higher-than-expected GDP growth in Q3, we maintain our forecast of -6.3% y-o-y for full-year 2020, which is still below BNM's latest forecasts of -3.5% to -5.5% and the government’s -4.5%. We remain cautious on the recovery: in our forecast, we pencil in GDP growth in Q4 of -6.0% from the -6.4% year-to-date average, reflecting the impact of the resurgence of new COVID-19 cases in the second wave, which is much bigger than the one in March, forcing the government to implement lockdowns across the nation from October.”