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Malaysia’s economy grew at a record pace in the second quarter due to the low base effect

From Chester Tay

KUALA LUMPUR – Malaysia’s economy expanded at a record pace in the second quarter due to last year’s low comparative base, but contracted quarterly amid a new lockdown to contain resurgent Covid-19 cases.

The economy grew 16.1% year over year, the Malaysian central bank said on Friday, marking the first phase of growth for the trading and transit center after four consecutive quarters of decline.

Economists polled by the Wall Street Journal had expected 15.0% growth in the second quarter after the economy contracted 17.1% in the same quarter a year ago when the coronavirus pandemic first forced a nationwide lockdown.

Quarterly, the latest GDP declined 2.0% as the country renewed statewide restrictions on movement to record levels with new cases of Covid-19 every day.

According to Bank Negara Malaysia, economic performance in the second quarter was mainly supported by improving domestic demand and continued robust export performance.

“Economic activity picked up at the beginning of the second quarter, but slowed afterwards after tighter containment measures were reintroduced across the country,” the central bank said.

The Malaysian central bank revised its GDP growth forecast for 2021 to 3.0% -4.0% on Friday, after 6.0% -7.5% previously.

The revision is mainly due to the reintroduction of nationwide containment measures, said Bank Negara Malaysia.

“The growth trajectory will depend on the ability to contain the epidemic and the achievement of the health outcomes of the nationwide immunization program,” it said.

The coronavirus has infected more than 1.3 million people with nearly 12,000 deaths in Malaysia. The country added more than 21,000 new Covid-19 cases on Thursday, another record.

Headline inflation rose from 0.5% in the first quarter to 4.1% in the second quarter, largely due to the base effect of fuel prices, according to Bank Negara.

“In the short term, headline inflation is likely to ease as the base effect of fuel prices wears off,” it said, adding that core inflation remained stable at 0.7% in the second quarter.

Bank Negara expects headline inflation to average 2.0% to 3.0% in 2021, while core inflation is likely to remain subdued given the ongoing spare capacity in the economy, with an annual average of 0.5% -1.5%.

Write to Chester Tay at [email protected]

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