KUALA LUMPUR: Malaysia's economic data for the second quarter (Q2) of 2020 shows the scale of the destruction that the Covid-19 pandemic has brought over the period, economists said.
And they agreed with Bank Negara Malaysia's assessment that the worst for the country was over and recovery was on the way.
At -17.1 per cent year-on-year, the Q2 slump was the sharpest ever, much higher than the previous low of 11.2 per cent contraction in Q4 1998 at the height of the Asian financial crisis.
It was the first quarterly decline since Q3 of 2009 during the global financial crisis.
"As nasty as the numbers were, there are silver linings to be seen, however," OCBC Bank economist Wellian Wiranto said.
"For one, intra-quarter, while April and May contractions were deep, most activities have rebounded encouragingly by June and beyond, signalling to us that the worst is over."
Wellian said while the MCO had compounded the economic damage in Q2, the payoff was clear now: Malaysia had gotten its pandemic situation under control and that would aid the economy to regain its footing.
"If we can, literally, borrow a page from its press release which accompanies today's GDP data announcement, Bank Negara has rightly pointed out the multiple V-shaped upticks in a number of key indicators," he added.
Bank Negara governor Datuk Nor Shamsiah Mohd Yunus, at a virtual press conference on the GDP numbers on Friday, said as the Movement Control Order had been gradually relaxed, economic activities had improved from the trough in April."
"As Covid-19 cases declined and movement restrictions were eased, economic activities began expanding in May and improved further in June. I am cautiously optimistic that the worst is behind us," she added.
Bank Negara has revised its full-year GDP forecast to between -3.5 per cent and -5.5 per cent.
It previously said the economy could contract as much as two per cent this year in the worst-case scenario.
Economists said the Q2 data had shown a broad-based fall in economic activities, but there were signs of recovery in June especially in the manufacturing and agriculture sectors.
Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid expects economic activities to pick up in Q3 and would continue in the final three months of the year as the economy continues to be operational albeit gradually.
"The monthly GDP series was quite reassuring as the extent of GDP decline has improved quite significantly as the economy began to reopen in May.
"We saw the GDP initially declined by 28.6 per cent in April and later reduced to 19.5 per cent in May and subsequently to 3.2 per cent in June."
Afzanizam added that expansionary fiscal policies adopted by the government and accommodative monetary stance by Bank Negara should help to steer the economy for the rest of the year and into 2021.
He also said the Covid-19 vaccine development seemed to point to a promising prospect in light of the recent testing conducted by the pharmaceutical and biotech companies, with some having gone into an advanced stage.
"The last time when the global community faced an extremely severe pandemic was in 1918 due to the Spanish flu. The disease has claimed at least 50 million lives globally and in Malaysia, the total casualty was 34,644 souls.
"Obviously, the present situation is much better thanks to technology and the state of our healthcare system.
"As such, we are revising our 2020 forecast from 1.5 per cent to 4.0 per cent, and next year we expect 6.2 per cent growth.
"In light of the monetary space that is widely available, we foresee another 25 basis points cut in overnight policy rate is quite likely," he said.
Putra Business School business development manager Associate Professor Dr Ahmed Razman Abdul Latiff said the latest GDP number was expected to be negative.
But the magnitude of it was a bit of a surprise since the figure was higher than what had been recorded by other Asean countries: the Philippines (16.5 per cent), Singapore (-13.2 per cent) and Indonesia (-5.32 per cent).
Ahmed Razman said this was probably due to the fact that Malaysia was among the first countries to impose a severe lockdown in March and Q2 was the period when many sectors were closed down and domestic economic activity including export and import were slowing down tremendously due to many countries were also imposing similar lockdowns.
"Nevertheless I believe that the worst is over and I expect to see recovery from Q3 and beyond.
"We would probably be going to experience a technical recession if Q3 still shows a contraction but I believe that the economy is already on its path of recovery based on recent positive indicators such as reduction of the unemployment rate, increasing exports and increasing loan activities," he said.
Bank Muamalat Malaysia Bhd economist Izuan Ahmad said the country's economy was facing "bumpy" road to recovery.
Izuan said some latest indicators including the purchasing managers' index (PMI) showed that global manufacturing had moved back into expansion territory in July, as output and new orders started to revive following slump caused by the pandemic.
"Global business sentiment also started to recover at a five-month high but the labour market downturn continued with job losses registered for the eighth straight month.
"Meanwhile, the industrial production index showed that with more industries resuming operations, the manufacturing sector has rebounded to 4.7 per cent growth in June, compared with earlier contractions, while both mining and electricity sectors have eased their contractions," he said.