Malaysia's economy has slowed down. Photo: Wikimedia Commons

Malaysia’s economy suffered its worst contraction in more than 20 years during the second quarter, hit by a collapse in global trade and tough curbs to contain the coronavirus, the central bank said Friday.

The economy shrank 17.1% on-year in April-June – the first since the global financial crisis in 2009 and the deepest since the Asian financial turmoil 11 years before that – putting it on course for recession.

The reading was much worse than the 10.9% drop forecast in a survey by Bloomberg News, despite interest rates being cut to record lows. It shrank 16.5% on-quarter.

Wan Suhaimi Saidi, an economist at Kenanga Investment Bank, warned that the trade-dependent economy was “heading into a recession since there is no sign of a full recovery in demand and business activity.”

He said he expects a full-year contraction of between 4% and 6%, more than the central bank’s estimate of 3.5-5.5%.

But Nor Shamsiah Mohamad Yunus, head of the central Bank Negara Malaysia, said the economy was poised for a recovery in the current quarter as virus-related restrictions are eased.

“We are likely to see a trough in the second quarter. The economy is poised for a recovery in the second half and rebound further in 2021,” he said at a virtual news conference. “I am cautiously optimistic the worst is behind us.”

Bank Negara said the second-quarter decline “reflected the unprecedented impact of the stringent containment measures to control the Covid-19 pandemic globally and domestically” imposed from mid-March to early June.

The restrictions, which included businesses being shut down and people confined to their homes, “resulted in demand and supply shocks,” with border control measures globally hitting tourism arrivals, the central bank added.

The country’s outbreak has been relatively small – recording just over 9,000 cases and 125 deaths – but the lockdown’s toll was heaviest on the economy.

Malaysia is highly dependent on trade and tourism, with its key exports including palm oil, crude oil and natural gas.