MIDF Research expects Malaysia’s economy to gradually recover from the third quarter of 2020, following a “largely expected” contraction for Q2 2020.
Malaysia’s economic recovery would depend on its progress in curbing the Covid-19 outbreak as well as on how the rest of world, especially the country’s key trading partners, were combating the spread of Covid-19 since this would affect global demand for Malaysia’s products, said MIDF Research, which is part of MIDF Amanah Investment Bank Bhd as reported in Bernama.
“The economic stimulus package is anticipated to provide some cushion to the adverse impact resulting from Covid-19,” it noted.
MIDF Research revealed that the country’s Leading Index (LI) fell further from -0.8% month-on-month in February to -4.9% month-on-month in March, implying an economic recession for the third quarter of 2020.
The hardest monthly fall since November 1991 was primarily due to the first phase of the government’s movement control order (MCO), which kicked in from 18 March, said the research house.
Of the seven LI components, five declined, including Bursa Malaysia Industrial Index, real imports of semi-conductors and the number of new firms registered.
The leading economic index, which increased 1.7% year-on-year in February, dropped 3.6% year-on-year in March.
The country’s export growth also registered a four-month low in March. Total trade contracted 3.8% year-on-year with exports shrinking 4.7%, while imports declined 2.7% during said period.
March also saw the Industrial Production Index (IPI) decline 4.9% year-on-year, or its steepest contraction since September 2009 and its first since December 2015.
The research house attributed the performance, which was a bit worse than market expectation, to a drop in all sub-indexes.
“The plunge was very much expected due to the disruption in the overall supply and demand chain domestically and globally due to Covid-19. In particular, Malaysia began its MCO in March. Overall, in the first quarter of this year, the IPI managed to record tepid growth albeit at a moderating pace of 0.6% year-on-year (fourth quarter 2019: 1.3% year-on-year),” it said.
“Looking ahead, we expect IPI performance in Q2 2020 to contract, owing to the extension of MCO and fluctuating commodity prices.”
MIDF Research expects unemployment rate in Malaysia to breach the 4% full employment condition in the coming months. And as the government reopens the economy, it sees the job market slowly recovering, while fears surrounding Covid-19 begin to subside.