Malaysia may see gradual economic recovery starting next quarter – MIDF Research

Kuala Lumpur, 1 June 2020 – After the “largely expected” economic contraction for the 2020 second quarter (Q2), Malaysia may see a gradual recovery starting from the third quarter depending on its progress in containing the COVID-19 outbreak, said MIDF Research.

In a note today, it said recovery would also depend on how the rest of the world, particularly Malaysia’s key trading partners, were combating the spreading virus as this would affect global demand for the country’s products.

“The economic stimulus package is anticipated to provide some cushion to the adverse impact resulting from COVID-19,” said MIDF Research, which is a part of MIDF Amanah Investment Bank Bhd.

It noted that Malaysia’s Leading Index (LI) declined further to -4.9 per cent month-on-month (m-o-m) in March from -0.8 per cent m-o-m in February, signalling an economic recession for the July-September 2020 period.

The hardest monthly fall since November 1991 was mainly due to the first phase of Movement Control Order (MCO) which was effective from March 18, the research house said.

Five out of the seven LI components declined, including real imports of semi-conductors, Bursa Malaysia Industrial Index and the number of new companies registered.

The leading economic index fell 3.6 per cent year-on-year (y-o-y) in March, following a 1.7 per cent y-o-y gain in the preceding month.

Malaysia’s export growth, it noted, recorded a four-month low in March. Total trade shrank by 3.8 per cent y-o-y with exports and imports contracting by 4.7 per cent and 2.7 per cent, respectively.

The overall Industrial Production Index (IPI) also declined by 4.9 per cent y-o-y in March, the first contraction since December 2015 and the steepest since September 2009.

 The performance, which was slightly worse than market expectation, was due to a decline in all sub-indexes.

“The plunge was very much expected due to the disruption in the overall supply and demand chain domestically and globally due to COVID-19. In particular, Malaysia began its MCO in March. Overall, in the first quarter of this year, the IPI managed to record tepid growth albeit at a moderating pace of 0.6 per cent y-o-y (fourth quarter 2019: 1.3 per cent y-o-y).

“Looking ahead, we expect IPI performance in Q2 2020 to contract, owing to the extension of MCO and fluctuating commodity prices,” MIDF Research said.

It forecast unemployment rate to breach the four per cent full employment condition in upcoming months but added that as the government reopened the economy, the job market would slowly recover and fears surrounding COVID-19 would begin to subside.

– BERNAMA