Malaysia economy shrinks in Q3 but on track for 3-4% full-year growth

SINGAPORE (ICIS)–Malaysia’s economy shrunk by 4.5% year on year in the third quarter as activities across sectors were heavily weighed down by strict COVID-19 containment measures, but it is still on track to register growth for the full year.

The contraction in the third quarter reverses the 16.1% GDP expansion in April-June this year, according to Bank Negara Malaysia.

On a quarter-on-quarter seasonally-adjusted basis, the economy registered a 3.6% decline, deeper than the 1.9% contraction posted in the second quarter, central bank data showed.

Construction output slumped by 20.6% year on year in the third quarter due to operating capacity limits, while manufacturing dipped 0.8% and services shrunk by 4.9%.

Malaysia’s GDP by Economic Activity

On the expenditure side, domestic demand in the September quarter declined by 4.1% year on year, as private consumption and investment activities slumped, while public sector consumption continued to increase.

Net exports for the quarter fell by 37.5% year on year.

“Progressive lifting of containment measures and continued improvements in the labour market will be key to support the recovery going forward,” Malaysia’s central bank governor Nor Shamsiah said.

For the whole of 2021, the economy is on track to expand by 3.0%-4.0%, Bank Negara said.

“Malaysia’s economy has started to regain momentum and is expected to return to positive expansions from this quarter (Q4) through 2022,” Singapore-based UOB Global Economics & Markets Research said.

“The improved outlook is augmented by broader vaccine coverage, supportive global demand, Malaysia’s transition to an endemic phase, normalising domestic demand, resumption of infrastructure spending, and further fiscal support.” it said.

Potential downside risks could arise from the emergence of new virus variants, slower China economy and regulatory tightening, commodity price shocks, energy supply crunch, elevated inflation, heightened volatility amid tighter global monetary policy as well as geopolitical risks, UOB added.

Focus article by Nurluqman Suratman