Following Q2’s record fall in GDP, activity contracted at a much softer pace in Q3 as Covid-19 restrictions were eased in early June. Exports shrank at a milder pace thanks to increased foreign demand, mainly for electronics, while domestic demand contracted less steeply, with consumer and capital spending both falling at a softer rate.
Turning to Q4, incoming data suggests that the recovery might be losing steam. The manufacturing PMI slid further into contractionary territory in October, reflecting moderating growth in new orders and output. This, coupled with the reinstatement of targeted lockdowns in October, bodes ill for private activity. Lastly, on 6 November, the government presented its draft 2021 budget of MYR 322.5 billion (about USD 78 billion)—the largest in the country’s history—based on a 6.5%–7.5% GDP growth rate and a lower fiscal deficit of 5.4% of GDP.
The economy is seen contracting sharply this year, before bouncing back in 2021 on the back of firming consumer spending, stronger construction activity and rebounding exports, as demand from key trading partners recovers. That said, the uncertain course of the pandemic clouds the outlook.
Focus Economics panelists see the economy growing 6.6% in 2021, which is unchanged from last month’s forecast. In 2022, the panel sees the economy expanding 4.6%.
By Suren Subramaniam | 24 November 2020