Household consumption, exports drive Malaysia’s GDP recovery

November 13, 2020

KUALA LUMPUR - Malaysia's GDP growth for the third quarter of 2020 has improved to minus 2.72% -- from minus 17.1% in the second quarter. The improvement was driven mainly by household consumption and exports. ANZ Bank says the impressive performance notwithstanding, it is mindful of lingering challenges -- the recent tightening of local social containment measures, the new wave of infections in Europe and the US, and still weak discretionary spending.

Household consumption in Malaysia for the third quarter expanded sequentially by almost 29% translating into a mild annual decline of 2.1% y/y. The recovery itself was led by higher spending on essential items.

"Discretionary spending is proving to be slow to mend," ANZ says. "Notably, Government spending jumped by 6.9% y/y despite the weakness in monthly government expenditure data. Net exports were also growth-accretive, with exports declining at a softer pace than imports."

In contrast, ANZ said, investment continued to be a drag on growth. While its pace of decline of 11.6% y/y was more moderate than in the previous quarter, it still subtracted 2.6% from overall GDP growth.

From the supply side, manufacturing outshone other sectors, continuing to benefit from an upturn in the global tech cycle. The performance of other sectors was more mixed.

The services sector largely bounced back from the lows of Q2, but tourism-dependent industries remain strained. Accommodation and food services, both associated with tourism, plunged by 53.9% y/y and 23.2% y/y respectively in Q3.

ANZ said that, with the impressive improvement in overall GDP, it would be re-visiting its full-year 2020 forecast for Malaysia. Of lingering challenges, it said, the most important was re-imposition of mobility restrictions in some regions. As a consequence, real time indicators had flat-lined. (ATI).