Economy contracted by 17.1% in Q2 of 2020
Bank Negara Malaysia says the economy contracted by 17.1% in the second quarter of 2020 (1Q 2020: 0.7%).
The decline reflected the unprecedented impact of the stringent containment measures to control the COVID-19 pandemic globally and domestically.
In Malaysia, the nationwide Movement Control Order (MCO) included various measures that restricted production and consumption activities.
This resulted in demand and supply shocks that emanated not only from significantly weak external demand conditions, but also production constraints in many economic sectors.
Additionally, there was a marked decline in tourism activity due to international border closures and restricted interstate travel.
On the supply side, most economic sectors registered negative growth, while most expenditure components declined. On a quarter-on-quarter seasonally-adjusted basis, the economy contracted by 16.5%.
During the quarter, headline inflation was at -2.6%, mainly due to substantially lower retail fuel prices compared to last year and the tiered electricity tariff rebate. Core inflation moderated slightly to 1.2%.
Exchange rate developments
In the second quarter of 2020, the ringgit appreciated by 0.5% against the US dollar, following the resumption of non-resident portfolio inflows as investor sentiments and risk appetite improved.
This was due to the quick implementation of large-scale liquidity injections and policy responses by central banks and governments.
Additionally, investor sentiments were also supported by the gradual easing of movement restrictions in a number of countries. This development is in line with regional currencies, which also appreciated against the US dollar during the quarter.
In the more recent period beyond the second quarter, the low global interest rate environment and optimism on a recovery in global growth continue to drive the positive market momentum within the region. As a result,
Malaysia continued to experience non-resident portfolio inflows and the ringgit appreciated by 2.2% against the US dollar since end-June 2020 (as at 13 August).
However, the global environment remains highly uncertain in the near-term, which may lead to capital flows and exchange rate volatility going forward.
Financing conditions
Net financing to the private sector1 continued to expand at 3.7% on an annual basis. Growth in outstanding business loans increased from 3.4% in 1Q 2020 to 3.9% in 2Q 2020, while outstanding household loan growth was sustained.
On a monthly basis, disbursements for business loans recovered to normal levels in June from low levels during the MCO in April and May.
This was in line with business loan demand that increased during the quarter, especially for working capital needs, while household demand for loans continued to decline amid more cautious sentiments.
GRADUAL RECOVERY
The Malaysian economy is expected to recover gradually in the second half of 2020 as the economy progressively re-opens and external demand improves.
Economic activity has resumed since the economy began to reopen in early May 2020. Consequently, growth is expected to have troughed in the second quarter of 2020, with a gradual recovery in the second half.
This outlook is underpinned by the rebound of key indicators such as wholesale and retail trade, industrial production, gross exports, and electricity generation.