KUALA LUMPUR -- Malaysia’s economy contracted 2.7% in the June-September quarter, the central bank announced on Friday, signaling a turnaround from the worst of the coronavirus pandemic's business-crippling effects.
The country's gross domestic product had plunged 17.1% on the year in the second quarter, and 16.4% in the first half, largely due to restrictions on movement. The quarterly decline seen in April through June marked the first since the global financial crisis days of 2009.
"Improvements were registered across major sectors in the third quarter, namely manufacturing, services, mining and construction," central bank Gov. Nor Shamsiah Yunus told a virtual news conference. She said the central bank also maintained its full-year GDP forecast of -4.5% to -3.5%.
The third-quarter result beat the median 3.2% contraction forecast by 15 economists polled by Reuters. UOB Malaysia had expected the economy to shrink 2.6% in the third quarter, with senior economist Julia Goh noting, "Manufacturing activity is expected to improve following the relaxation of COVID-19 containment measures since early May and the ramp-up of production to meet a backlog of orders."
UOB also anticipated a recovery in the agricultural sector thanks to higher crude palm oil output. But it warned of the risk of another economic setback due to renewed restrictions to control a resurgence in coronavirus infections.
Malaysia has recorded thousands of cases since September, hitting a daily high of 1,755 on Nov. 6. The total is approaching 44,000 with 303 deaths.
In her news conference, Nor acknowledged the recent wave and said the bank expects full-year growth to come in at the lower end of its estimate, as it "has already factored in" COVID's return.
"The targeted conditional movement orders implemented in most states currently can somehow affect our growth momentum in the fourth quarter," Nor conceded. "But it's worth noting that the current order is not the same with the movement control order announced in March, with almost all businesses allowed to operate now" as long as they follow the rules.
The Malaysian economy, Southeast Asia's third-largest, had expanded at a 4.4% clip in the third quarter of last year. In the first three months of 2020 it managed 0.7% growth. But the government imposed a strict nationwide lockdown in mid-March, which lasted for a month and a half before most sectors were allowed to reopen. Prime Minister Muhyiddin Yassin said earlier this year that the measures cost the country 63 billion ringgit ($15 billion) in losses up to May 1.
The crisis is also being blamed for retrenchments and salary cuts affecting almost half the working class, undermining domestic demand. The unemployment rate stood at 4.9% in June and is expected to reach 5% by year-end.
To help drive the recovery, Muhyiddin's embattled government last week proposed a 2021 budget that would be the country's largest ever, worth 322.5 billion ringgit.
Nor said the external outlook also offers reason for optimism. "Not all is gloom and doom," she said, pointing to the vaccine news in the U.S. and a recovery in global trade and investment.
"The bank expects Malaysia's economy [will] grow by 6.5% to 7.5% next year," she said. "Economies of Malaysia's major trading partners are expected to recover next year, providing a spillover effect in Malaysia."