• Growth improved during the quarter due to smaller declines in both domestic demand and exports, while all sectors registered slower contraction with manufacturing sector rebounding in 3Q20
• We maintain our GDP growth projection of -5% in 2020 compared to the official forecast of -4.5%
• For 2021, we are projecting real GDP growth to recover and expand by 6.0%, as compared to the official forecast of between 6.5% and 7.5%.

Improvement in GDP growth led by domestic demand and exports in 3Q20

Malaysia’s real GDP growth registered a smaller decline of -2.7% yoy in 3Q20, a sharp improvement when compared with -17.1% in 2Q20, its second consecutive quarter of contraction. Going forward, the ongoing CMCOs in some states will likely impact on economic momentum in 4Q20, but as the current targeted containment measures were less severe than in 2Q20 (i.e., most economic sectors allowed to operate subject to SOPs), we believe the country’s real GDP growth will register a smaller decline in 4Q20. Based on estimates provided, the country’s economic losses were close to between RM0.9bn to RM1.4bn per day during the CMCO in 2Q20, as compared to the current CMCO of losses of between RM0.2bn to RM0.3bn per day.

The smaller decline in GDP growth was reflected in the reopening of the economy from containment measures as well as better external demand conditions in 3Q20. Growth in domestic demand recovered from a sharp decline of -18.7% yoy in 2Q20 to -3.3% in 3Q20, supported by both total investment and total consumption. Net exports contribution to GDP growth also expanded by 1.5 percentage points in 3Q20, turned around from -2.7 percentage points in 2Q20. On a quarterly seasonally adjusted basis, real GDP growth expanded strongly by 18.2% in 3Q20 compared to -16.5% in 2Q20. However, in the first three quarters of 2020, real GDP growth averaged -6.3% yoy compared to 4.6% in the same period of last year. According to Department of Statistics (DOSM), on a monthly basis, real GDP growth contracted by -2.7% yoy in August and -3.6% in September, before registering a small decline of -1.6% in October, as the country transitioned into RMCO from 10th June 2020, following the CMCO from 4th May to 9th June 2020.

The sharp improvement in domestic demand growth was reflected in total consumption, with a smaller decline of -0.6% yoy in 3Q20 (-15.1% yoy in 2Q20), led by growth in private consumption (-2.1% yoy in 3Q20 vs. -18.5% in 2Q20), as household spending improved following loosening of movement restrictions while broad income conditions had also increased. The 2020 stimulus packages (such as the EPF i-Lestari withdrawals, wage subsidies and sales tax reduction for cars) supported consumer spending. Growth in public consumption rose to 6.9% yoy in 3Q20 (+2.3% in 2Q20), its fastest growth since 4Q17, underpinned by higher Government spending on supplies and services and higher expansion in emoluments.

Source: Affin Hwang Research - 16 Nov 2020