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Malaysia economy contracts 17.1% in 2nd quarter, worst slump since 1998 financial crisis

Malaysia economy contracts 17.1% in 2nd quarter, worst slump since 1998 financial crisis

The Central Bank said the GDP has contracted by 17.1 per cent in the second quarter. (Photo: Bank Negara Malaysia )

KUALA LUMPUR: Hard hit by the COVID-19 pandemic, Malaysia's gross domestic product fell by 17.1 per cent in the second quarter of 2020.

According to the Department of Statistics, this was the Malaysian economy’s worst performance since the height of the Asian financial crisis in 1998.

Central bank governor Nor Shamsiah Yunus said in a press conference on Friday (Aug 14) that the sectors worst hit by the pandemic were tourism, manufacturing and investment.

She said it was “always expected” for growth in the second quarter to be weak.

“Although the economy has been badly affected, the gradual reopening from May 4 provided some relief and some signs of recovery,” she said.

Malaysia's Central Bank Governor Nor Shamsiah Yunus. (File photo: Bernama)

READ: Malaysia has raised its poverty line by more than 100%. Where do things go from here?

When asked why the Malaysian economy, which is the third-largest in Southeast Asia, has been hit harder than others in the region, the governor explained that it was primarily due to the Movement Control Order (MCO).

“The COVID-19 pandemic had a devastating impact on the economy and this can be influenced by three key factors. In Malaysia, if you recall, a nationwide MCO was imposed and research shows that Malaysia was the strictest in the region (in implementing control measures) at least until the first week of June.  In comparison, South Korea, for example, eased its restrictions mid-April."

She added that as people had complied strictly with the movement restrictions, this took a toll on the economy.

The governor said that another factor was a sharp decline in tourism arrivals. She said the situation was the worst in April.

READ: COVID-19 - Malaysia extends loan moratorium for 3 months for those who lost jobs

“Since the (COVID-19) cases declined, economic activities began expanding in May and further improving in June.

“I am cautiously optimistic that the worst is behind us,” she said.

This general view shows the Kuala Lumpur city skyline as seen from the Kuala Lumpur Tower on February 24, 2020. (Photo: AFP/Mohd Rasfan)

Following this record contraction of the economy, the governor added that the central bank was projecting a full year contraction of between 3.5 per cent and 5.5 per cent. However, growth is expected to rebound to between 5.5 per cent and 8.8 per cent in 2021.

Earlier this month, Minister of Finance Tengku Zafrul Aziz said he expected the GDP figure to be affected by the implementation of the MCO.

"Having said that, we are not alone as the COVID-19 is a global pandemic; more than 150 countries in the world will face an economic contraction in 2020," he was reported as saying.

READ: COVID-19- Weddings are allowed again in Malaysia, but industry players expect lull to continue

As for the third quarter, Mr Tengku Zafrul said the result will depend on how the country handles the pandemic.

"If we can sustain the growth, 3Q20 should be better than 2Q20, though 4Q20 will also depend on how the global economy has improved because, as you know, we are a very open economy and we are very much part of the global supply chain," he said.

Health workers perform a COVID-19 test in Malaysia. (File photo: Reuters/Lim Huey Teng)

Malaysia had its first case of COVID-19 on Jan 24 when three Chinese nationals tested positive for the virus. 

The first wave which happened between Jan 24 to Feb 15 had a total of 22 cases, 12 of which had a travel history to other affected countries.

However, following a mass religious gathering between Feb 27 to Mar 1, the number of cases began rising rapidly, leading to a second wave.

As a result, Prime Minister Muhyiddin Yassin in a televised address announced the MCO which essentially required the ceasing of all activities except for those deemed as essential services. The first phase of the MCO was between Mar 18 and Mar 31.

READ: Malaysia's May exports fall 25.5%, worst in 11 years

The prime minister later announced four more phases of the MCO, which was relaxed to a conditional MCO on May 4, under which certain business sectors were allowed to restart operations. 

As the COVID-19 situation improved further, Mr Muhyiddin announced in early June that the country would enter a recovery MCO phase, where all businesses were allowed to resume operations under strict measures.

The recovery MCO is slated to end on Aug 31.

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Source: CNA/kd


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