KUALA LUMPUR: Malaysia’s economy shrank by 4.5% in the third quarter ended Sept 30, 2021 compared with a 16.1% expansion in the second quarter but the economy is on a recovery trajectory in the fourth quarter and extending into 2022.
Bank Negara Malaysia said on Friday the Malaysian economy is expected to improve following the normalisation of economic activities. For 2021, the domestic economy is on track to expand by between 3% and 4%.
"Growth will be supported by the increase in economic activities as containment measures are progressively relaxed, amid continued policy support. The various relaxations of restrictions for fully vaccinated individuals including for interstate travel would also spur tourism-related activities," it said.
In addition, the strength in global demand will continue to support export growth.
Going forward into 2022, Governor Datuk Nor Shamsiah said in a statement: “Malaysia’s growth trajectory is expected to improve given resumption of economic activities, further improvement in the labour market, continued policy support and expansion in external demand.
"The progress and efficacy of vaccinations, compliance with Standard Operating Procedures (SOPs) as well as the ability to effectively contain outbreaks from any new Covid-19 variants of concern (VOCs) will be key to the expected recovery,” she said.
In 3Q21, the services sector shrank by 4.%, manufacturing 0.8%, agriculture 1.9%, mining 3.6% and construction the biggest at 20.6%
“This was largely attributable to the strict containment measures particularly in July, under Phase 1 of the National Recovery Plan (NRP)1.
“Economic activity subsequently picked up as more states transitioned into Phase 2 with less restrictive containment measures,” it said.
Bank Negara said on the supply side, all economic sectors registered a contraction.
The construction sector contracted the most due to operating capacity limits. On the expenditure side, domestic demand declined by 4.1% (2Q 2021: +12.4%), weighed down mainly by the contraction in private consumption and investment activities, while continued increase in public sector consumption spending provided support to growth.
GDP3Qeconomic Activity-Nov21
Nor Shamsiah said: “Progressive lifting of containment measures and continued improvements in the labour market will be key to support the recovery going forward”.
“On a quarter-on-quarter seasonally-adjusted basis, the economy registered a decline of 3.6% (2Q 2021: -1.9%).
Economists had expected the economy to have shrunk between 2.2% on-year and 5% compared with a growth of 16.1% on-year in the second quarter.
Bloomberg’s estimate was -2.2%, UOB 3.5% and Malaysian Rating Corporation 3.7%.
Maybank Investment Bank Research had expected the economy to have shrank 5% on-year due to recent data including the industrial production index, distributive trade index and contraction in the crude palm oil output and weaker index of services.
GDP3Q by expenditure-Nov21
Headline inflation moderated to 2.2% during the quarter (2Q 2021: 4.1%). This was due mainly to the dissipation of the base effect from fuel prices, and the implementation of the three-month electricity bill discounts. Core inflation remained at 0.7% during the quarter (2Q 2021: 0.7%).
On the ringgit, Bank Negara said the ringgit depreciated by 0.8% against the US dollar in the third quarter of 2021.
It explained this largely reflected the broad strengthening of the US dollar following greater clarity from the US Federal Reserve that it would likely begin tapering its asset purchase programme towards the end of the year.
However, since Oct 1, the ringgit has appreciated by 0.9% (as at Nov 9) against the US dollar, broadly in line with the trend in other regional currencies.
The ringgit was further supported by an improved domestic outlook amid the economic reopening and higher commodity prices.
"Going forward, as uncertainties regarding global liquidity adjustments and developments surrounding the path of the pandemic remain, financial and foreign exchange markets are expected to be subject to periodic bouts of volatility," it said.
Bank Negara said net financing to the private sector recorded an annual growth of 3.9% (2Q 2021: 4.4%), reflecting lower growth in both outstanding loans (2.9%; 2Q 2021: 3.6%) and outstanding corporate bonds (6.5%; 2Q 2021: 6.9%).
Outstanding household loan growth moderated to 3.2% (2Q 2021: 5.3%), amid slower growth across all purposes. Loan applications and disbursements, however, improved in September given the relaxation of movement restrictions.
"For businesses, outstanding business loans grew by 2.4% (2Q 2021: 1.3%), supported by higher working capital loan growth.
"This expansion was also mainly driven by the wholesale and retail trade, restaurants and hotels, and manufacturing sectors, in line with the resumption of business activity amid the reopening of the economy," Bank Negara said.