Malaysia: GDP records largest contraction on record in Q2
GDP plunged 17.1% year-on-year in the second quarter, contrasting the 0.7% expansion recorded in the first quarter and marking an all-time low as fallout from the pandemic hammered activity. Q2’s reading was far below market expectations and marked the worst result in the ASEAN region.
The downturn was broad-based and largely reflected contractions in private consumption, fixed investment and exports. Household spending fell at a record pace of 18.5% in the second quarter amid a strict lockdown and deteriorating labor market (Q1: +6.7% yoy). Surprisingly, public spending growth slowed to 2.3% in Q2 (Q1: +5.0% yoy), despite government stimulus to combat the economic fallout. Fixed investment fell at a quicker pace of 28.9% in Q2 from the 4.6% contraction in Q1, plagued by the uncertain outlook.
On the external front, exports of goods and services dropped at a quicker pace of 21.7% in Q2 (Q1: -7.1% yoy), struck by mobility restrictions and dried up external demand. In addition, imports of goods and services declined at a sharp rate of 19.7% in Q2 (Q1: -2.5% yoy), reflecting the battered domestic economy.
On a seasonally-adjusted quarter-on-quarter basis, GDP contracted 16.5% in Q2, which was below the previous period’s 2.0% fall and again marked a record low.
The grim Q2 result revealed that Malaysia’s economy is caught in a deeper-than-expected recession. While the gradual reopening of the economy that started in May should bode well for a recovery ahead, low commodity prices, a decimated tourism sector and likely cautious consumer spending look set to keep a turnaround moderate.
Commenting on Nomura’s forecasts after the release, analysts Euben Paracuelles and Rangga Cipta noted:
“Because of the much sharper contraction in Q2, we reduce our 2020 GDP growth forecast further to -6.3% from -5.8%. […] Domestically, the relaxations have still been accompanied by strict guidelines, hampering the recovery in H2, when we expect external demand conditions to only slowly improve. In addition to the slow recovery in private consumption, we think second-round effects from the global economic slowdown and lower commodity prices for Malaysia’s exports will further exacerbate the deterioration in growth.”