KUCHING: With Malaysia’s Gross Domestic Growth (GDP) growth clocking in at 4.3 per cent in 2019 – lower than forecast – some analysts forewarn of this GDP drag continuing into 2020 on fears of the 2019 Novel Coronavirus (COVID-19) slowing down the economy.
Yesterday, Bank Negara Malaysia (BNM) revealed that the economy expanded by 3.6 per cent in the fourth quarter of 2019, dragging Malaysia’s full-year GDP growth to 4.3 per cent – the lowest since the 2009 financial crisis amid supply disruptions in the commodity sector during the quarter.
Although the full-year growth is within BNM’s forecast of between 4.3 to 4.8 per cent, it could have been higher at 4.7 per cent without the supply disruptions in the commodity sector.
The central bank also expected the COVID-19 outbreak to affect Malaysia’s GDP growth for the first quarter of 2020 (1Q20), depending on how the virus spreads and evolves, according to its governor Datuk Nor Shamsiah Mohd Yunus in a press conference yesterday.
RAM Ratings Bhd (RAM) maintained its forecast for 2020 at a cautiously optimistic 4.5 per cent despite notable downside risks.
“In particular, the rapid spread of the COVID-19 and its impact on discretionary services and industries such as tourism, retail and F&B may dampen the services sector – the largest sectoral component of GDP,” it said in a note yesterday.
“Supply chains, especially those most strongly linked to China, will also be affected by temporary factory closures. Exports of goods for both industrial and household consumption will moderate amid more sluggish external demand and lower production.”
The key determinants of the impact of these downside risks are the length and severity of the epidemic, RAM said, adding, “This could shave 0.2 to 0.5 percentage points off our GDP growth projection for 2020.
“We highlight that this is currently our best estimate of the impact given the still-fluid situation and a lack of confirmed official data.
“That said, the potential support from monetary and fiscal policies will play an integral role in sustaining growth momentum. The expedient roll-out of projects as well as accommodative credit conditions are critical to driving growth this year amid such highly uncertain conditions.”
Going into 2020, BNM’s Nor Shamsiah said the overall impact of COVID-19 on the Malaysian economy will depend on the duration and spread of the outbreak as well as policy responses by authorities. Thus, the central bank said some measures would be introduced in the COVID-19 stimulus package.
Finance Minister Lim Guan Eng had said the stimulus package would be unveiled in early March at the latest and based on the impact of the virus which originated from Wuhan, China.
For the year, growth will be supported by household spending, the realisation of approved private investment projects in recent periods and higher public sector capital spending, said Nor Shamsiah.
“Nevertheless, there are downside risks to growth. These include uncertainties in external conditions arising from the ongoing virus outbreak, the various trade negotiations and geopolitical risks, as well as domestic factors, including weaknesses in the commodities sector and delays in project implementation,” she added.
“Thus, two-way capital flows and exchange rate volatility should be expected.”
Headline inflation in 2020 is projected to average higher than in 2019, but remain modest.
The trajectory of headline inflation will be dependent on global oil and commodity price developments and the timing of the lifting of the domestic retail fuel price ceilings.
“Underlying inflation is expected to be broadly stable, reflecting the continued expansion in economic activity and the absence of strong demand pressures,” she said.