According to ICAEW’s latest Southeast Asia report, economic growth in Malaysia is expected to slow to 3.7 percent in 2020 amid the COVID-19 situation as it continues to affect the tourism flow, household spending and supply chain.
In a statement, ICAEW said the growth is expected to spring back to 4.5 percent in 2021, supported by accommodative macro policies and fiscal stimulus.
The 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. However, these headwinds are expected to be temporary.
Sian Fenner, ICAEW Economic Advisor & Oxford Economics Lead Asia Economist, said, while the impact of the COVID-19 outbreak will be larger than that of SARS due to greater movement of people and interdependence of supply chains, most of the economic impact will be in the first quarter of 2020.
“Supported by accommodative macro policies, we will see growth recover in the second half of 2020,” said Fenner.
Despite the unexpected blow from COVID-19, 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, gross domestic product growth across the region is forecast to fall to 4.2 percent in 2020, down from 4.5 percent in 2019, the slowest pace of growth since the 2008 global financial crisis.
ICAEW Regional Director, Greater China and Southeast Asia Mark Billington said that if the outbreak is prolonged, longer-term expenditures could be affected, slashing growth even further.
“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 said.
The economic stimulus package announced by the Malaysian government and other fiscal measures aim at softening the impact of COVID-19 on the economy while preserving the welfare of citizens will stabilise domestic demand and partially ease the impact of the virus situation. Bank Negara Malaysia (BNM) also recently made its second policy rate adjustment for 2020, lowering the overnight policy rate (OPR) by 25 basis points (bps) to 2.5 percent.
The full Economic Update: Southeast Asia report is available at: https://www.icaew.com/technical/economy/economic-insight/economic-insight-south-east-asia