Moody’s lowers Malaysia 2020 GDP growth forecast to 3%


MOODY’S Investors Service Inc has lowered its 2020 GDP growth forecast for Malaysia to 3%, due to the implications of Covid-19 and the global oil price war on South-East Asia’s third-largest economy.

The intensifying virus outbreak heightens growth risks, raises fiscal pressures for some and is a credit negative, Moody’s senior VP Christian de Guzman said.

“The combination of weaker global growth and heightened containment measures related to the coronavirus outbreak, as well as a recent sharp drop in oil prices, have prompted us to further lower our GDP growth forecasts for much of Asia Pacific (APAC) in 2020,” he said in a report yesterday.

This is even assuming a recovery in the second half of the year, he added.

The credit rating agency had in February already reduced its 2020 GDP expansion projection for Malaysia to 4.2%, from a previous estimate of 4.5%.

In APAC, including Malaysia (A3 stable), the intensification of the outbreak will prompt significant economic weakening as slowing domestic consumption exacerbates disruptions to supply chains and cross-border trade of goods and services.

Over the past few days, countries in APAC and across the globe have intensified restrictions on their populations amid the rapid spread of Covid-19.

Recent containment measures in Asia include Malaysia’s Movement Control Order, which took effect on Wednesday and restricts movement and assembly within the country, as well as travel overseas.

“But substantial policy buffers in some of the worst-affected economies will allow governments to mitigate the credit-negative impact,” de Guzman said.

Despite the challenges, many of the region’s most severely hit economies enter this period with substantial policy buffers, which local authorities are using to prop up growth.

A number of governments have revealed fiscal stimulus packages or budgets featuring temporary and targeted measures to deal with the immediate impact of the coronavirus outbreak on households and affected sectors.

Elsewhere in APAC, Moody’s sees China’s (A1 stable) economy expanding 4.8% in 2020 before picking up to 5.5% in 2021, as economic activity slowly resumes and export demand remains weak.

As for Macau (Aa3 stable), growth is expected to slump 20% in 2020, marking its second year of contraction following a 4.7% drop in 2019.

“The decline highlights Macau’s reliance on tourism and the gaming sector, as well as its close proximity to China,” the rating agency said.

Likewise, Hong Kong (Aa3 stable) — which has also been buffeted by trade tensions and local protests — will shrink by 3.5%, after a 1.3% dive in 2019.

The Maldives’ (B2 negative) tourism-centric economy will contract by 3.5% in 2020, while Mongolia (B3 stable) will grow a modest 1.8%, reflecting its dependence on commodity exports to China.

“Meanwhile, we no longer expect Japan’s (A1 stable) and Singapore’s (Aaa stable) economies to expand,” Moody’s said, adding that even at these weaker assumptions, risks to growth are firmly on the downside in particular if growth in Europe and the US (Aaa stable) declines more than anticipated.

Rising rates of the Covid-19 infection would drive global sentiment even lower, heightening asset price volatility and tightening financing conditions, which could snowball into deeper economic contraction in Asia and beyond.

Such a volatile financing environment raises liquidity, as well as external vulnerability risks.

“If global investors shift their funding away from riskier assets, that could tighten funding conditions and cause currency depreciation for sovereigns with high foreign currency exposure, heavy reliance on external market funding or inadequate foreign currency reserve coverage,” the firm said.