OCBC revises GDP growth to 4% due to Covid-19

By S BIRRUNTHA / Pic By MUHD AMIN NAHARUL

THE Covid-19 outbreak may impact 0.4% of GDP in the first quarter of the year (1Q20), if the virus itself does not pose more major risk to Malaysia, OCBC Bank Malaysia Bhd said.

In its latest report titled “Unmasking the implications of Covid-19 on Asia”, the bank said it has revised the GDP growth to 4% from 4.2% as a result of weaker than anticipated performance in 4Q19.

OCBC also downgraded the forecast for 1Q20 GDP to 3.5%.

“Given the slow momentum from the GDP data from 4Q19 that was just released, this would compound the slowdown even more and compelled us to downgrade the forecast for 1Q20 GDP to 3.5%,” it said.

“For the full year of 2020, we now expect growth of 4%, compared to our already fairly conservative 4.2%.”

The bank said there is a good chance of another rate cut by Bank Negara Malaysia (BNM) in the upcoming meeting next month, bringing the Overnight Policy Rate to 2.5%.

“This follows the 25-basis-point cut that it had enacted just last month, but BNM may be more inclined to act now because of the virus threat and also given that any fiscal stimulus package by the government will likely be very limited because of the debt constraints,” it said.

The report added that for Asian countries, the industries that will be most affected include those related to tourism such as airlines and hospitality.

Financial institutions will also feel the impact from the outbreak.

However, it is expected that their existing business profile, scale and their systemic importance should shield them from adverse impacts for the time being.

In terms of commodities, the bank expects depressed prices to continue in the space, whether that be energy, agricultural, industrial metals or rubber.

“The longer the coronavirus situation lasts, the starker this demand drawdown would be,” the report stated.

Meanwhile, IHS Markit Asia-Pacific chief economist Rajiv Biswas said the Covid-19 crisis has become a “black swan” event for the Asia-Pacific commercial aviation industry, as mainland Chinese travel to the rest of the Asia Pacific has collapsed due to travel bans imposed by many governments.

“The new restrictions on travel by visitors outbound from China combined with the collapse in demand for travel to China from other nations is forcing many Asia-Pacific airlines to temporarily cancel their flights to mainland Chinese cities until the epidemic is contained,” he said in a report.

As of now, countries that have imposed stringent travel bans on visitors from China include Japan, Australia, India, Indonesia, New Zealand, the Philippines, Singapore and Vietnam.

However, Malaysia and Thailand have imposed limited restrictions on Chinese visitors, without an overall travel ban yet.

“Many Asia-Pacific airlines are likely to face near-term economic difficulties as they reduce flight schedules and face deteriorating profit margins while the Covid-19 epidemic continues to disrupt air travel.

“Asia-Pacific governments are likely to face increasing pressure to roll out stimulus measures to support their commercial aviation and tourism industries through this severe economic crisis,” he added.