Malaysia’s GDP Q1 growth may slow further to 3.5%, says OCBC

PETALING JAYA: Malaysia’s first-quarter (Q1) gross domestic product (GDP) growth may weaken further to 3.5% due to the impact of the coronavirus outbreak, after a sharp moderation in Q4 2019 GDP growth to 3.6%.

OCBC Bank has lowered its 2020 forecast for Malaysia to 4%, from 4.2% earlier given the ongoing concerns.

“In particular, assuming some, but not complete, recovery in various commodity production, and some impact on private consumption and exports from the viral outbreak, Q1 may see growth of 3.5% year-on-year,” it said yesterday.

It said its previous forecast of 4.2% for 2020 was already at the low end of the street and below the existing Bank Negara Malaysia (BNM) forecast range, noting that Malaysia’s economy slowed down even before the virus hits.

OCBC believes that the central bank will not be revising up its current 4.3-4.8% forecast.

“A shade down to 4.0-4.5%, given the weak momentum and uncertainties is not out of the picture.”

In terms of policy action, having surprised the market with its “pre-emptive” cut last month, OCBC thinks there is a distinct possibility for BNM to cut rate again, and soon, in the next meeting on March 3.

“This will be especially so if the commodities production does not pick up. Needless to say, much will depend on how the coronavirus outbreak develops as well, be it contagion of the viral sorts or the economic variety.”

While the government is preparing a stimulus package to help, it cautions against harbouring hopes of any forceful injection, given fiscal constraints.

“Indeed, given the denominator effect, the slower GDP growth that we are likely to see is already going to present some challenges to meeting the 3.2% debt-to-GDP target. Hence, for all the help that the Malaysian economy needs this year, BNM remains the main source relative to the fiscal side.”

Meanwhile, RAM Ratings maintained its GDP growth forecast for 2020 at a cautiously optimistic 4.5% despite notable downside risks.

In particular, it said the rapid spread of the novel coronavirus and its impact on discretionary services and industries such as tourism, retail and F&B may dampen the services sector – the largest sectoral component of GDP.

Supply chains, especially those most strongly linked to China, will be affected by temporary factory closures. Exports of goods for both industrial and household con-sumption will moderate amid more sluggish external demand and lower production.

“The key determinants of the impact of these downside risks are the length and severity of the epidemic. This could shave 0.2 to 0.5 percentage points off our GDP growth projection for 2020. We highlight that this is currently our best estimate of the impact given the still-fluid situation and a lack of confirmed official data,” said RAM.

JPMorgan is projecting Malaysia’s GDP to expand 3.9% this year, but noted that the depth and breadth of the outbreak across borders in recent weeks could pose further downside risk.

“While we had expected Bank Negara to remain on hold through 2020 and adopt a data-dependent stance following last month’s policy easing action, the macroeconomic fallout from the current SARS-Cov-2 outbreak raises the bias for policy easing amid ongoing fiscal consolidation efforts. Thus, we continue to expect a 25 bps policy easing in Q2 to address these growth concerns.”