Despite the gloom and doom that was exacerbated by the recent announcement of Malaysia’s worst economic performance since 1998 in the second quarter of this year (2Q20), which showed a sharp contraction of 17.1% of the gross domestic product (GDP) – exceeding Singapore’s 13.2%, which is also its worst performance – it is not the end of the world yet for both countries, especially Malaysia.

Fitch Solutions Country Risk and Industry Research, a unit of international ratings agency Fitch Solutions, expects economic activity in Malaysia to pick up in the second half of 2020 (2H20), in line with the relaxing of the movement control order (MCO), which is expected to be further eased over the coming months, barring a surge in 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 2H20,” it stated in an Aug 14 report, on the same day our 2Q20 report was released by Bank Negara Malaysia.

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 that the worst is over.

But of course, in real life, ceteris is not always paribus and in this case, the occurrence of a second wave of infections will throw a spanner in the works of the government for a speedy economic upturn in the form of a V-shaped recovery.

Thus, the responsibility of ensuring a speedy economic recovery does not lie with the government alone as the second wave of Covid-19 will definitely occur if the SOPs devised under the recovery movement control order (RMCO) are wilfully flouted.

But let us for a moment assume that the second wave does not strike. Any sane person will know that the 2Q20 result, which consists of the months of April, May and June, ought to be relatively bad, despite the best efforts of the government in reviving the economy.

How can one expect a scenario of a contraction of 1% to 5% or for that matter, a contraction of 5% to 7% when there was a total lockdown of the economy from March 18, and was only partially lifted on May 4 when the conditional movement control order (CMCO) was implemented?

And even under the CMCO, although the economy was partially opened, people were still afraid to venture out due to the fear of the virus lurking around the corner.

The turning point came during the RMCO period, from June 6, when the economy was kick-started. However, in the beginning, people were still reluctant to spend for fear of bad times to come and instead started saving for a rainy day, leading to the paradox of thrift in economics.

This paradox, in turn, could lead to a liquidity trap in which the money that the government was putting in the rakyat’s pockets was not spent, thus driving down consumption spending, which is one of the drivers of economic growth.

The compilation of the GDP was further improved for the first time in 2Q20 with the introduction of the additional estimation of monthly GDP in measuring the current economic performance.

This is similar to Singapore, where it introduced a flash estimate on its quarterly GDP by announcing it earlier based on the estimated first two months of each quarter.

In the case of Malaysia, based on these monthly estimates, the sharp decline in the economy was observed in April, down 28.6% of the GDP, while in May, it contracted 19.5%, and a further improvement in June with a smaller contraction of 3.2%.

Furthermore, the slower contraction in June was observed in all sectors with the exception of manufacturing and agriculture, which posted a positive growth of 4.5% and 11% respectively. Other sectors registered a slower contraction – construction (-12.7%), mining and quarrying (-16.4) and services (-6%).

This observation is supported by the June data on unemployment (4.9% compared with May’s 5.3%), exports bouncing back (an increase of 8.8% to RM82.9 billion in June from May’s decline of 25.5%), trade surplus widened 98.7% to RM20.9 billion in June (the largest ever recorded compared with the previous largest trade surplus in October 2019 with a value of RM17.3 billion) and the manufacturing Purchasing Manager’s Index (PMI) of 50.0 for July.

Mind you, all these figures are not projections but actual latest figures and a stand-alone number for the respective months. Meanwhile, the 2Q20 result has two other months dragging it down, that is, April and May.

It remains to be seen whether the latest stand-alone figure for July’s actual unemployment data, actual exports figure, actual trade surplus and August’s actual PMI figure (all to be released by September) will be on an upward trajectory.

There will always be a lag effect between projected and actual figures because of the need for data collection and analysis, but what is more important is not to make a hue and cry over the quarterly figure. Rather, it is the annual figure that matters.

On this basis, Fitch Solutions forecasts the Malaysian economy will contract 4.5% this year and expand by 6.3% next year. But remember, these are projections and the actual figures could be less, more or the same as the projected ones. We will only know the actual annual figure for 2020 in February next year.

It is analogous to a war tactic and strategy – it is OK to lose some battles as long as you win the war by winning the mother of all battles. This means that it is fine to have some negative quarterly GDP growth (the battles), however sharp the contraction is, as long as you are triumphant in the mother of all battles, which is the annual actual GDP figure.

The rest, as they say, is collateral damage that comes with the war against the Covid-19 pandemic.

In the beginning of this article, I seemed to imply Malaysia was in a relatively better position than Singapore when I said “especially Malaysia”, although its 2Q20 GDP was worse than the republic’s. This is because Singapore had already experienced a technical recession defined as two consecutive negative quarterly growth while Malaysia has not.

But do not underestimate Singapore, as even though analysts wrote it off in the past during global financial crises, it rebounded with new vigour.

Jamari Mohtar is director of media and communications at EMIR Research.

The views expressed are those of the author and do not necessarily reflect those of FMT.