Malaysia’s economy posted a smaller contraction of 2.7 per cent in the third quarter (3Q) of 2020, surpassing consensus estimate of -4.6 per cent, as well as the Gross Domestic Product (GDP) contraction of 17.1 per cent in 2Q, supported by improvements in all sectors, continuous normalisation of economic activities and higher demand from key trading partners.  Although the economy is in a technical recession, it has shown signs of recovery as the manufacturing industry rebounded by 3.3 per cent in 3Q as compared with a decline of 18.3 per cent in 2Q due to strong electrical and electronics (E&E) production activities.

Bank Negara Malaysia Governor Datuk Nor Shamsiah Mohd Yunus said recovery in export performance was driven by E&E exports given the strong demand of work-from-home equipment and medical equipment, resulting in current account on the balance of payment registering a higher surplus of RM56.1 billion or 7.1 per cent of GDP during the quarter under review. “However, the outlook is still subject to downside risk, whereby the resurgence of COVID-19 cases could impact the global growth, although the risk to economic growth due to the resurgence in cases is not expected to be as severe as observed in the 2Q,” she said during the virtual 3Q GDP media conference today.

On the domestic front, Datuk Nor Shamsiah said the containment measures in affected states could post some challenges to economic growth and activities. On sectors, the services industry recorded a contraction of -4.0 per cent to the GDP against -16.2 per cent in 2Q. The construction sector recorded -12.4 per cent in 3Q against -44.5 per cent in 2Q, however, the relaxation of construction activities and ongoing infrastructure projects would provide support for growth going forward.

The growth for next year will be driven by continuous stimulus measures announced in the National Economic Recovery Plan (PENJANA) and Budget 2021, which includes tax allowances, investment incentives, and the implementation of various projects, as well as the National Digital Networking Plan (JENDELA), a digital infrastructure plan to improve the digital connectivity in Malaysia.

Datuk Nor Shamsiah also pointed out that the Malaysian banking sector has been proactive in addressing the effects of COVID-19. However, the prevailing adverse economic conditions have made it more cautious, and It is expected to continue making provisions for impairments in the third quarter (3Q) of 2020. “As we stated in the Financial Stability Review, we don’t see the need of additional provisioning for the next two years,” she said.

According to Bank Negara Malaysia’s Financial Stability Review released in October, overall credit costs to banks could rise to RM29 billion or 1.4 per cent of total loans over 2020 and 2021. These projections were based on the conservative estimate of the share of loans under targeted repayment assistance.

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