Malaysia’s 2020 GDP growth to sink to 3.7% amid Covid-19


MALAYSIA’S economic growth is expected to decrease to 3.7% this year, as the Covid-19 situation continues to weigh on tourism, supply chains and household spending.

However, growth is expected to spring back to 4.5% in 2021, supported by accommodative macro policies and fiscal stimulus, according to the Institute of Chartered Accountants in England and Wales’ (ICAEW) latest “Economic Update: South-East Asia” report.

“Impact from the Covid-19 situation on China’s economy will continue to spill over to Malaysia in the first and second quarters of 2020 through lower tourism flows, household spending and varying degrees of supply chain disruptions.

“However, these headwinds are expected to be temporary,” it said.

Malaysia’s GDP growth sank to 4.3% in 2019, the lowest since the global financial crisis due to supply disruption in the agriculture and mining sectors.

Bank Negara Malaysia (BNM) has also warned that Covid-19 will likely affect domestic growth particularly in the first quarter this year (1Q20).

While the impact of the Covid-19 outbreak is larger than that of SARS due to greater movement of people and interdependence of supply chains, most of the economic impact will be felt in 1Q20, ICAEW said.

“Supported by accommodative macro policies, we will see growth recover in the second half of 2020 (2H20),” said Sian Fenner, the lead Asia economist at Oxford Econo-mics which partners ICAEW, in a statement yesterday.

Despite the unexpected blow from Covid-19, export and import momentum across South-East Asia is expected to improve significantly throughout the rest of the year, as production and daily lives return to normal.

The US-China “Phase One” trade deal and a recovery in the global electronics cycle in 2H20 also bode well for the region’s external outlook.

Overall, GDP growth across the region is forecast to fall to 4.2% in 2020 from 4.5% in 2019, the slowest pace of growth since the 2008 global financial crisis.

Expansionary monetary policy and proactive boosts to fiscal spending will stabilise domestic demand and partially ease the impact of the virus situation.

Among these policies are the economic stimulus package announced by the government aimed at softening the impact of Covid-19 on the economy while preserving the welfare of citizens.

BNM also recently made its second policy rate adjustment for 2020, lowering the Overnight Policy Rate by 25 basis points to 2.5%.

“We remain cautious that if the outbreak is prolonged, longer-term expenditures could be affected, slashing growth even further,” ICAEW regional director for Greater China and South-East Asia Mark Billington said.

At the moment, the impact of Covid-19 is expected to be high but short-lived and cushioned by countries’ efforts to boost domestic demand, he added.

ICAEW also downgraded Singapore’s GDP growth forecast to 1% for 2020. The country had 178 confirmed Covid-19 cases as at press time, of whom 96 have recovered and been discharged.

Thailand’s GDP growth is set to decline to 1.9% in 2020 from 2.4% in 2019, impacted by reduced tou-rism flows and private consumption, as well as delayed government spending.

However, the country could expect a recovery in 2H20, with its central bank having cut rates to a new low of 1% in February and its government likely to announce an additional stimulus package.