KUALA LUMPUR – Economists had expected Malaysia’s economy to contract by 4.5% in the third quarter of 2021 (Q3 2021) because of a decline in inventories.
Prof Geoffrey Williams, dean of Malaysia University of Science and Technology’s Institute of Postgraduate Studies, and Prof Paolo Casadio of HELP University’s ELM Graduate School said that inventories fell by 4.1% quarter on quarter (q-o-q) compared to Q2 when inventories increased by 4.2%.
“This is exactly as expected,” said Williams, commenting on Malaysia’s Q3 2021 GDP performance announced by Bank Negara Malaysia and the Statistics Department.
“The inventory effect had actually pushed up gross domestic product (GDP) in Q2 and made the figures look like a sharp rebound, whereas underlying activities were still very sluggish and we are seeing this effect now in Q3.”
They also said external demand was a drag on GDP, contracting by 1.2% q-o-q, and this was a surprise because both import and export volumes contracted. However, exports were affected worse than imports.
“Net exports contracted 37.5% in Q3 when they had increased by 34.3% in the preceding quarter. So, the external trade environment is still very uncertain.
“Domestic final demand made a modest overall positive contribution of 1.7% q-o-q. Part of this was from private consumption, which increased by 2.2% q-o-q.
“Public consumption added 0.7% q-o-q, thanks to the government stimulus. All of these suggest there is no real sign of a pent-up consumption boom.”
On the other hand, Williams and Casadio said that fixed investment fell by 1.1% q-o-q and this is the biggest problem at the moment.
“Investment is the engine of the economy and we have seen a contraction of 5.8% in Q3 from a contraction of 7.5% in Q2.
“The overall result is a cumulated fall of 11.1% year-on-year in fixed investment. It suggests very difficult times are continuing for many companies.
“We are actually in recession because the two consecutive contractions of the GDP by 1.9% in Q2 and 3.6% in Q3 are a technical recession. This is purely the result of the lockdown policy,” they said.
Full-year 2021 GDP
Even with a rebound expected in Q4 2021, Williams and Casadio said that the whole year will close with an average growth around 2.8%, which is very disappointing following the contraction of 5.6% in 2020.
“Instead of a powerful rebound in 2021 to recover the earlier contraction, the Malaysian economy will only claw back about half of what was lost during the previous recession in 2020.”
Outlook for 2022
For 2022, Williams and Casadio said that they expect an overall growth of only 2.5% over the year and GDP will only return to the level in Q4 2019 in the second part of 2023.
“That means two and a half years of growth wiped out because of the lockdowns.
“We think that the forecast by Bank Negara of 5.5%-6.5% for 2022 may prove optimistic rather than their forecasts for 2020 and 2021, which were both cut significantly as the reality of the economic harm caused by the lockdowns unfolded.” – The Vibes, November 12, 2021
