COMMENT | GDP plunge - not end of the world yet

COMMENT | Despite the gloom and doom that was exacerbated by the recent announcement of the worst economic performance of Malaysia since 1998 during the second quarter of this year (2Q20) which showed a deep contraction of 17.1% GDP growth – exceeding Singapore’s contraction of 13.2% which is also its worst performance – it’s not the end of the world yet for both countries especially Malaysia, because all it means though we are not out of the woods yet, the worst seems to be over.

Fitch Solutions Country Risk and Industry Research, a unit of international ratings agency Fitch Solutions expects economic activity in Malaysia to pick up again over the second half of 2020 (H220) – a six-month period spanning the third and fourth quarters – in line with the relaxing of movement control order measures that are expected to be further eased over the coming months, barring a recurrence of the worst Covid-19 infections.

“Similar to other Asian economies such as Singapore, we believe that the worst has passed for Malaysia in terms of the recession and in the absence of a second wave of Covid-19 infections, a recovery, albeit slow and fragile, is set to commence in H220,” the research unit stated in an Aug 14 report, on the same day our 2Q20 report was released by Bank Negara.

In simple terms, it means the bottom (trough) has been reached. Whenever a trough has been reached, under the economic theorising of ceteris paribus (everything else remains constant), the GDP growth curve will have nowhere else to go but upwards, denoting the worst is over.