Covid-19 could cost Malaysia’s economy RM5.9b this year

World Bank says sectors affected are tourism, FDI, supply chains and commodities, which include palm oil and O&G

by NUR HANANI AZMAN / pic by BLOOMBERG

THE Covid-19 outbreak could cost the country’s economy RM5.9 billion this year and the figure could rise further if authorities around the world fail to contain the spread of the deadly virus.

The coronavirus, which originated from Wuhan, China, had already slowed manufacturing activities, grounded factory lines, disrupted supply chain and dented consumer spending in China and elsewhere.

The tourism sector had been hit the hardest. Fear of the virus had forced travellers, especially from China, to postpone their trips. Major airlines had cancelled or reduced flights to China.

Malaysia is still reeling from the US-China trade war which dragged the October-December period or fourth quarter of 2019’s (4Q19) growth to 3.6%, the lowest level in 10 years.

AmBank Group chief economist and head of research Dr Anthony Dass said using the estimated GDP forecast of 4.6% and minus 0.4% point, the drop is equivalent to RM5.9 billion.

“If we take the estimated GDP nominal value of about RM1,600 billion for the full-year 2020, a 0.4% drop will be around RM6.4 billion.

“Slower growth would affect business cashflows and orders. It will add pressure on retrenchment as more companies downsize,” he told The Malaysian Reserve (TMR).

World Bank said sectors which are impacted by Covid-19 in Malaysia are tourism, foreign direct investment (FDI), supply chains and commodities, which include palm oil and oil and gas (O&G).

In Malaysia, hotel room cancellations are mounting.

The Malaysian Association of Hotels said up to 157,000 room bookings valued at RM66 million had been cancelled. Most of the cancellations involved visitors from mainland China besides Singapore, Hong Kong, Taiwan, Vietnam and Europe.

Tourism-related industries like tour services and retailers have been hit as tourist arrivals drop significantly. Malaysia received 10.28 million visitors from Singapore and China in the first nine months of last year.

Putrajaya is targeting 10 million foreign visitors to the country this year with tourist receipts of RM100 billion or about 7% of the country’s GDP.

Malls and retailers are already reeling with a drastic drop in footfalls, including for the big-spending tourists. Manufacturers have also warned of raw material disruptions which will slow production and sales.

Malaysia’s exports to China, the former’s largest trading partner, could drop due to the latter’s sluggish economy.

The Malaysia-China bilateral trade reached a new 11-year high, estimated at US$124 billion (RM519.56 billion) or 17.2% of Malaysia’s total trade last year.

China had also become Malaysia’s largest export destination for the first time, with exports totalling RM139.61 billion. A 10% drop in exports would cost the country RM13.9 billion.

Singapore, Malaysia’s former biggest export destination, has warned of a possible recession this year after recording only a 0.7% growth last year. Malaysia’s GDP expanded 4.3% last year.

Dass also expects a slower 1Q growth and any measures introduced by the government should ensure the downside risks are stabilised.

But calculations of the GDP drop would be moderated by the stimulus and increases in the production of products like gloves.

OCBC Bank Malaysia Bhd recently said the Covid-19 outbreak may impact 0.4% of GDP in 1Q20.

The bank has also revised the GDP growth to 4% from 4.2% as a result of weaker than anticipated performance in 4Q19. OCBC expects the GDP to expand 3.5% in 1Q20.

Dass said based on the estimates that the 1Q20 GDP will be below the 3.6% reported in 4Q19, the outlook for 2Q20 will depend on how fast the Covid-19 outbreak can be resolved and the impact of the stimulus measures and Budget 2020.

“Assuming all these events turn positive, the 2Q20 growth should be better than 1Q20. Otherwise, the downside risk in 2Q20 remains high,” he said.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said he foresees growth coming in at around 3% to 3.5% in the first half of 2020 (1H20).

“This would mean the economy is operating below its potential level as there are unused resources (labour and capital) in the economy. As such, policy responses from the fiscal and monetary authority are warranted to ensure economic growth can be stabilised.

“I think the 1H20 GDP growth will be weak. At the moment, we don’t have any solid data to assess the immediate impact,” he said.

The global economic growth this year is expected to drop by 0.2% to 0.3%. The US 1Q growth could take between 0.2% and 0.4% hit as investors dread the impact of the coronavirus outbreak.