LOCAL businesses are choosing to remain cautious in the third quarter of the year (3Q20) as the economy struggles to recover from the aftermath of the Covid-19 pandemic.
From conditional movement control order (CMCO) to recovery movement control order (RMCO), more businesses were allowed to resume operations as the number of new Covid-19 cases steadily dropped from double- to single-digit.
According to the latest Business Tendency Survey by MIDF Research, overall business confidence improved to -21% in 3Q20 from -25.2% in 2Q20.
“Businesses in the construction sector became less pessimistic due to increased confidence on future income and permission to continue construction activities, resulting in an increase of business sentiment to -23.7% in 3Q20 from 2Q20’s -75%,” MIDF Research said in its economic report released on August 28.
It added that a similar trend was observed in the wholesale (-22.3% in 3Q20 versus -51.5% in 2Q20) and services industry (-14.6% in 3Q20 versus -27.8% in 2Q20), which was mainly driven by increased consumption activities.
Following the improvements of the services sector, other sub-sectors showed signs of improvements as well, namely the accommodation (-50.1% in 3Q20 versus -91.7% in 2Q20) and the transportation and storage sub-sectors (-17.9% in 3Q20 versus -52.4% in 2Q20).
Additionally, confidence in the communications and insurance services both rebounded back to positive (26.6% and 16.7% respectively), supported by improved demand.
The survey results revealed a significant difference to the local business sentiment compared to 2Q20 when most affected businesses become growingly concerned over current and future income as well as the ability to maintain employment after the government imposed the movement control order (MCO) in mid-March 2020.
“The low level of overall confidence in 2Q20 (-25.2%) was even worse than 1H09 (-23%) when Malaysia’s economy was hit by the Global Financial Crisis,” MIDF said in its report.
Certain other sectors experienced an even worse drop in confidence such as real estate (-100% in 2Q20 versus -3.7% in 1Q20), accommodation (-91.7% in 2Q20 versus -21.2% in 1Q20) and construction (-75% in 2Q20 versus -13.8% in 1Q20).
“This caused a large contraction in economic growth, as Malaysia’s real gross domestic product (GDP) declined by 17.1% year-on-year (y-o-y) in 2Q20, against the previous quarter’s 0.7% y-o-y,” it added.
Entering the second half of the year (2H20), Malaysian businesses indicated improved expectations on the economic outlook, with the future tendency indicator rising to -11.2% in 3Q20 compared to -42.8% in 2Q20.
Respondents of the survey expressed hope that certain sectors will do better in the near term, namely services (-4.8% in 3Q20 versus -44.6% in 2Q20), manufacturing (-5.6% in 3Q20 versus -34.6% 2Q20) and agriculture (-6.5% in 3Q20 versus -23.1% in 2Q20).
“Overall, we expect continued recovery in domestic demand, supported by fiscal and monetary stimulus, will further improve business confidence,” MIDF said.
“Moreover, with exports reporting positive growth in recent months, growing external demand will provide support to trade-related sectors, especially manufacturing and transport services,” it added.
Despite signs of improvement, MIDF noted that the intensity of activities is yet to return to the levels prior to the Covid-19 crisis.
“At current juncture, we project Malaysia’s economic growth to contract by -4.8%, taking into account the sharp GDP contraction of 17.1% y-o-y in 2Q20 from the full impact of the MCO,” MIDF said, adding that the recent signs of recovery pointed towards an encouraging growth outlook in 2H20.
“We expect consumers and businesses will continue to normalise and gradually increase their spending activities, supported by the government’s fiscal stimulus programmes.”
MIDF believes that the positive growth of exporting activities in 2H20 will also provide additional support to the country’s economic recovery, as trading partners ease restrictions and reopen their borders.
“However, we remain cautious on the potential risks from a new wave of Covid-19 outbreak and the escalation of tensions between the US and China, which could derail recovery in the global economy and international trade,” MIDF said. – Sep 1, 2020
