Malaysia’s GDP likely contracted in third quarter

Malaysias economy likely slipped back into contraction in the third quarter as coronavirus-induced restrictions brought economic activity to a near-standstill, a Reuters poll found.

After bouncing back from its worst recession in more than two decades in the second quarter, the South-East Asian economy shrank 1.3% in July-September from a year earlier, according to the median forecast of 20 economists in the poll.

Forecasts for the change in gross domestic product (GDP), due to be released on Nov 12, ranged from -6% to +1%, underscoring widespread uncertainty around the economic impact of the Covid-19 pandemic.

“The deceleration reflected strict movement restrictions to curb the more contagious Delta variant virus infections,” said Chua Han Teng, an economist at DBS Group Research.

“With much of the economy under harsh curbs, private consumption, investment, and manufacturing activities took a big hit,” he added.

Renewed Covid-19 lockdowns dampened a nascent economic recovery, pushing Malaysias central bank to slash its 2021 growth forecast to 3%-4% from 6%-7.5% previously.

After chopping its benchmark rate by 125 basis points last year as the pandemic took hold the central bank was expected to keep rates unchanged until the third quarter of next year, a separate Reuters poll showed.

But the economy is expected to gain momentum, expanding 4% in the current three-month period as a ramped-up vaccination drive, a record government budget to spur post-pandemic recovery and gradual reopening have boosted hopes of a turnaround.

The government expects Malaysias economy to grow 5.5%-6.5% next year, driven by normalisation of economic activity, resumption of projects, higher commodity prices and strong external demand.

“We expect a strong recovery in the coming quarters as restrictions are eased further and normal economic life returns. This will also be supported by loose fiscal policy, with the recent 2022 budget targeting another ramp up in spending,” said Alex Holmes, emerging Asia economist at Capital Economics.

“With vaccine coverage now among the best in the world, virus cases falling back sharply and the government easing restrictions, activity is rebounding strongly.”

But several economists warned the bleaker outlook for Chinas export market and continued pandemic fears pose downside risks to growth.

China is Malaysias largest trading partner. — Reuters