The Worst Is Over For Malaysia: OCBC Bank

KUALA LUMPUR, Aug 14 (Bernama) -- While Malaysia’s economy declined 17.1 per cent in the second quarter (Q2) of this year, economists are optimistic that the worst is over. OCBC Bank in its treasury research note Friday said the slump was the sharpest ever with private consumption shrinking by 18.5 per cent year-on-year as consumers pulled back despite the cash handouts and a blanket loan moratorium. “Investment and exports shrank even more sharply, victims of poor outlook and production shutdown alike during the Movement Control Order (MCO) period while government spending was proved supportive,” it said. Although the numbers were bad, there were silver linings to be seen, with the economy showing signs of rebound, it added. “While the MCO compounded the economic damage in Q2, the payoff is clear now; Malaysia has gotten its pandemic situation under control and that will aid the economy to regain its footing,” it said. OCBC Bank said the contraction rate of 17.1 per cent year-on-year showed the deepest contraction in any quarter, even worse than the 11.2 per cent that Malaysia went through in Q4 1998 at the height of the Asian Financial Crisis. “In seasonally adjusted terms, the economy shrank by 16.5 per cent from the previous quarter, following a 2.0 per cent sequential contraction in Q1, and hence ‘qualifying’ for the common morbid threshold of a technical recession,” it said. The bank added that despite the sharp downturn, the central bank has rightly pointed out the multiple V-shaped uptick in a number of key indicators. “Even though April and May saw deep contractions across major economic indicators ranging from trade and industrial production to credit card spending and electricity generation, there has also been a sharp recovery starting from June, akin to the uptick in export activities,” it said. OCBC Bank opined that there is a good chance of Bank Negara Malaysia (BNM or Malaysia's Central Bank) cutting rate further by 25 basis points to a new record low of 1.5 per cent when the Monetary Policy Committee (MPC) meets next on Sept 10. “Even though BNM gives off an optimistic vibe in its second half (H2) outlook, signalling that recovery is already taking place, we see that, on balance, the sharp magnitude of Q2’s GDP hit and the still-uncertain global outlook in H2 would warrant another ‘insurance cut’ akin to its action in the July MPC meeting,” it said. -- BERNAMA