PETALING JAYA: Following the release of economic growth figures, which surprised on the downside, the Malaysian Rating Corporation Bhd (MARC) believes that a mix of monetary and fiscal policy will be needed over the course of this year to prevent further downside.
In a statement, MARC said the possibility of another policy rate adjustment by Bank Negara Malaysia (BNM) is now looking more certain.
“Given the material impact of the novel coronavirus (Covid-19) outbreak on the Chinese and global economies, Malaysia will likely arm itself with both fiscal and monetary arsenals in 2020. On the fiscal side, the government is already planning to introduce a stimulus package in the near term. In our view, these efforts should be applauded,” it said.
The rating agency noted that on the monetary side, BNM has been rightfully cautious about adjusting the policy rate to ensure sufficient ammunition is available when needed most, while also taking into consideration the effectiveness of such a policy.
“Having said this, it is worth noting that the recent Covid-19 outbreak has the potential of impacting the global economy in a manner greater than initially anticipated.
“Firstly, the severity of the outbreak exceeds the previous SARS outbreak in 2003. Secondly, the size and contribution of the Chinese economy to the world economy is far greater now than before,” it said.
It should be noted that appears to be a correlation between China’s economic growth and that of the Malaysian economy, with an estimate suggesting that a 0.5% contraction of China’s economy is associated with a 0.2% decline in the growth of the Malaysian economy.
With the expected pronounced impact of the Covid-19 outbreak on the global and domestic economies, some estimates suggest that China’s headline GDP growth could likely slip to between 5% and 5.5% this year - its lowest since 1990.
For the fourth quarter, the Malaysian economy slipped to 3.6% from 4.4% in the preceding quarter, its slowest quarterly growth since 2009 due to a slowdown in the external sector.
For the full year, the economy grew by an inflation-adjusted 4.3% in 2019, the slowest since 2009 and stood below Malaysia’s potential growth of 4.75% as estimated by the International Monetary Fund (IMF) in 2019.
Meanwhile, private consumption contributed roughly 100% of the overall growth in 2019. It also represented a good 59% of the overall economy.
Investments, however, dragged the headline growth, taking off 0.5 percentage point for the whole of 2019, on uncertainties among businesses and investors due to the challenging global economy and slower momentum in domestic activity.
