Malaysia's economy shrinks faster than expected in Q4 on tighter Covid-19 curbs

KUALA LUMPUR (BLOOMBERG) – Malaysia’s economic contraction quickened again in the fourth quarter, as a fresh coronavirus wave late in 2020 helped drive the economy to its worst annual showing since the Asian financial crisis.

Gross domestic product shrank 3.4 per cent in the fourth quarter from a year earlier, its third straight contraction and a deeper decline than the -3.1 per cent figure analysts surveyed by Bloomberg were expecting. The economy contracted 5.6 per cent for all of 2020, its worst performance since 1998 and below the government’s projection of -3.5 per cent to -5.5 per cent.

“Going into 2021, the Malaysian economy is projected to recover,” Bank Negara Malaysia Governor Nor Shamsiah Mohd Yunus told reporters on Thursday (Feb 11). “A key factor supporting growth in 2021 is the improvement in global demand as the rollout of vaccines is expected to lift consumer and business sentiments. This will boost private spending activity and support the economic recovery.”

The worst may be over – at least for now – as Malaysia allowed the retail sector to resume operations on Wednesday, following a month-long lockdown that’s estimated to have cost the economy RM700 million (S$229.4 million) a day. The government said it would gradually reopen the economy, even as the country remains under a state of emergency.

The loosened restrictions came into effect after health officials estimated daily virus cases peaked at the end of January. The nation added 2,764 new cases Tuesday – the smallest number since Jan 11 – and Health Director-General Noor Hisham Abdullah said infections may show a downward trend by the time the lockdown is slated to end Feb 18. The tally rose to 3,288 cases on Wednesday.

The government last month unveiled a RM15 billion package to help the economy weather the impact from the recent surge in Covid cases. The plan, which includes cash support to the poor, tax breaks and wage subsidies, will be funded through a reallocation of existing funds and not via fresh spending.

Nor Shamsiah declined to give an estimate for 2021 GDP – which the central bank previously forecast at 6.5 per cent-7.5 per cent growth – saying it will be addressed next month.

“There have been many developments since the earlier forecast,” and the bank is continually reassessing the data, she said.

Private analysts surveyed expected the economy to contract 5.8 per cent for the full year.

The fourth-quarter figure compares with the third quarter’s 2.6 per cent year-on-year contraction, according to the central bank.

The economy shrank 0.3 per cent in the fourth quarter from the previous three months on a seasonally adjusted basis, compared to an 18.2 per cent gain in the previous quarter.

Headline inflation averaged -1.2 per cent in 2020, mainly reflecting weak oil prices. For 2021, it’s expected to average higher, Nor Shamsiah said.

Malaysia’s central bank has kept its benchmark interest rate at a record low of 1.75 per cent since July.

Prime Minister Muhyiddin Yassin said last week the government is aiming for a balance that will protect lives while ensuring that economic activity continues.

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