KUALA LUMPUR, May 13 (Xinhua) -- Malaysia's economic growth eased sharply to 0.7 percent in the first quarter, dragged by the spreading of COVID-19 pandemic, the central bank said Wednesday.
Bank Negara Malaysia (BNM), the central bank, said in a statement that services and manufacturing sectors moderated while other sectors contracted. External demand and investment also declined while private consumption growth moderated.
On a quarter-on-quarter, seasonally adjusted basis, the economy shrank by 2 percent in the first quarter.
"After a steady expansion in the first two months of the quarter, economic activity came to a sharp downshift with the implementation of the MCO (Movement Control Order) on March 18," it said.
The Malaysian government has implemented the Movement Control Order to contain the spread of COVID-19. The restrictions were eased since May 4 to allow most economic activities to reopen.
According to the central bank, private consumption expanded by 6.7 percent while private investment contracted by 2.3 percent.
On the supply side, the mining sector contracted 2.0 percent, while growth in the manufacturing sector was 1.5 percent, services sector growth slowed to 3.1 percent.
While the central bank expects the economy to contract in the second quarter to reflect the longer duration of containment measures both globally and domestically, the economy should gradually pick up in the second half of the year.
"As these containment measures are eased and the domestic MCO is lifted, economic activity is expected to gradually improve in 2H 2020," it said, adding the Malaysia economy is expected to register a positive recovery in 2021.
Earlier, the BNM projected the economy to either shrink by up to 2 percent or grow marginally by 0.5 percent this year due to the pandemic.
In a note Wednesday, OCBC Bank Research said it is concerned over the private consumption data in the second quarter as bulk of the private consumption reported have been due to frontloaded purchases ahead of MCO imposition.
"We may see a contraction as deep as 6 percent year-on-year during the period, before eking out some gains in H2 to allow it to post growth of -0.5 percent for the year," said OCBC Bank Research economist Wellian Wiranto.
As Malaysia has implemented a 100 basis points rate cut this year, he expects the central bank to leave the interest rate unchanged at 2 percent, if such baseline scenario holds.
"If there is any indication that growth momentum would suffer more deeply despite the easing of the MCO, Bank Negara Malaysia would not be hesitant to cut rate further below the now-historic low to 1.5 percent," he said. Enditem