Investment in Malaysia

Malaysia - Investment

GDP drops at sharper annual rate in Q4

GDP slid 3.4% year-on-year in the final quarter of 2020, falling at a sharper rate than Q3’s 2.6% drop and undershooting market analysts’ expectations of a 3.1% contraction. Q4’s faster downturn was attributed to steeper declines in household and capital spending, dragged down by the tightening of movement restrictions from early November amid surging Covid-19 infections. All in all, GDP declined 5.6% in 2020, logging the worst contraction since 1998 during the Asian financial crisis.

Private consumption declined at a sharper rate of 3.4% in annual terms in Q4, following Q3’s 2.1% drop. Similarly, fixed investment fell 11.9% year-on-year, deteriorating from Q3’s 11.6 slide and contracting for the eighth successive quarter. Meanwhile, although government spending grew again, it did so at a notably softer pace (Q4 2020: +2.7% yoy; Q3 2020: +6.9% yoy).

On the external front, exports of goods and services dropped at a softer rate of 1.8% in Q4 (Q3: -4.7% yoy), supported by improving foreign demand. Moreover, imports of goods and services fell at a less pronounced pace of 3.3% in Q4 (Q3: -7.8% yoy). As a result, the external sector contributed positively to overall GDP, but less so than in the previous quarter.

Lastly, on a seasonally-adjusted quarter-on-quarter basis, GDP dipped 0.3% in Q4, contrasting Q3’s 18.2% surge.

Looking ahead, the economy is poised to return to growth, as domestic activity gradually picks up and firming foreign demand and recovering oil prices buoy the external sector. However, the tightening of Covid-19-related restrictions from early January until 18 February is likely to obstruct recovering activity in the first quarter of 2021.

Julia Goh and Loke Siew Ting, economists at UOB, noted:

“The year kicked off on a more challenging note as tighter containment measures were introduced under the Movement Control Order (MCO 2.0) and a state of emergency was announced as part of wider efforts to contain the COVID-19 pandemic. As such the speed bumps on the recovery path are likely to persist into 1Q21 with possibly another quarter of contraction. […] The growth trajectory is expected to improve from 2Q21 onwards, aided by a low base effect, further improvement in the global economy, and gradual normalization in domestic activity. This would be further supported by the vaccination program that starts in March, signs that the infections are trending downwards, as well as ongoing fiscal and monetary support. We maintain our 2021 GDP growth target at 5.0%”

FocusEconomics panelists expect GDP to expand 6.3% in 2021, which is down 0.5 percentage points from last month’s forecast. In 2022, our panel sees GDP growth at 5.2%.