ICAEW: Malaysia’s GDP growth to moderate to 3.7% this year on Covid-19 outbreak

PETALING JAYA: Malaysia’s economic growth is expected to slow to 3.7% in 2020, as the Covid-19 outbreak continues to weigh on tourism, supply chains and household spending, according to the Institute of Chartered Accountants in England and Wales’ (ICAEW).

“However, growth is expected to spring back to 4.5% in 2021, supported by accommodative macro policies and fiscal stimulus,” it said in the latest “Economic Update: Southeast Asia” report.

The report highlighted that the impact from the outbreak 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, the institute opined that these headwinds will be temporary, as the 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 Malaysian government, aimed at softening the impact of Covid-19 on the economy while preserving the welfare of citizens,” said the report.

Bank Negara Malaysia has also made its second policy rate adjustment for 2020, lowering the overnight policy rate by 25 basis points to 2.5%.

ICAEW Economic Advisor & Oxford Economics Lead Asia economist Sian Fenner said the impact of Covid-19 will be larger than that of SARS due to greater movement of people and interdependence of supply chains, hence most of the economic impact will be in the first quarter of 2020.

However, growth is expected to recover in the second half of 2020, supported by accommodative macro policies.

Despite the unexpected blow from the outbreak, the institute said the export and import momentum across Southeast Asia is expected to improve significantly throughout the rest of the year, as production and people’s daily life get back to normal.

“Moreover, the US-China phase one trade deal and a recovery in the global electronics cycle in the second half of the year bode well for the region’s external outlook. “

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

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

“At the moment, we expect the impact of COVID-19 to be high, but short-lived and cushioned by countries’ efforts to boost domestic demand,” he added.