Prolonged Covid-19 may hit Malaysia’s GDP hard

Expert says GDP growth could fall below 4% if the country experiences a sharp fall in Chinese tourists and weaker orders from China

by ALIFAH ZAINUDDIN / pic by HUSSEIN SHAHARUDDIN

THE country’s economic growth may fall below 4% if the coronavirus outbreak worsens and powerhouses like China and the US fail to halt the slides of their own economies.

Countries across the world are already calculating the billions of losses due to the Covid-19 which is the worst flu outbreak in 18 years.

Trade-reliant economies like South Korea, Singapore and Malaysia would be severely impacted. The three countries had already felt the impact of the US-China trade war. Malaysia’s neighbour Singapore had already warned of a possible recession this year due to the virus.

China is Malaysia’s largest trading partner and the cooling of the second-largest economy in the world would definitely impact the country.

The spread of the coronavirus, named Covid-19, hits exports, factory output and tourism.

A Bloomberg poll of 33 economists estimated Malaysia’s average growth of 4.2% with individual forecasts ranging between 3.7% and 4.7%. One analyst expects the coronavirus will hive 0.4% of Malaysia’s GDP.

IHS Markit Ltd Asia-Pacific chief economist Rajiv Biswas said Malaysia’s GDP growth could fall below 4% this year if the country experiences a sharp fall in Chinese tourists and weaker orders from China, particularly in the first three months of the year.

He, however, said business activities could rebound by mid2020 if the coronavirus outbreak in China could be brought under control soon.

“Overall, taking into account that the Malaysian government will likely implement stimulus measures to support growth shortly, the overall GDP growth impact for 2020 is expected to be moderate, with annual GDP growth dipping just below 4% in 2020, but rebounding in 2021 to a pace of approaching 5%,” he told The Malaysian Reserve.

The government is expected to announce a stimulus package next Thursday. Putrajaya has maintained a GDP growth forecast of 4.8% for this year. A revision of the forecast is expected during the announcement of the stimulus.

China’s US$14.3 trillion (RM59.48 trillion) economy is already expected to slump to its slowest rate in the first quarter (1Q) as factories remain closed, while millions of its citizens are on lockdown.

AxiTrader Ltd chief Asia market strategist Stephen Innes said the impact of the tourism decline, the drop in consumer confidence and lower exports can only be seen in 1Q.

“Direct tourist receipts alone accounted for 5.8% of GDP in 2018, with Chinese tourists accounting for about 15%. Malaysia has barred Chinese arrivals only from the Hubei Province since Jan 27, so this will start to show up in the data as soon as late February or March,” Innes said.

“But Bank Negara Malaysia (BNM) has sufficient policy wiggle room to move interest rates lower and the rating agencies will likely look through any temporary bout of fiscal spending splurge despite the dismal shape of the government coffers,” he added.

Central bank governor Datuk Nor Shamsiah Mohd Yunus has hinted at another possible cut in the Overnight Rate Policy in March. The benchmark rate is currently at its lowest since March 2011 after BNM made a decision to reduce it by 25 basis points to 2.75% last month.