StanChart Global Research lowers Malaysia’s GDP growth forecast to 2.5 percent amid Covid-19 outbreak

The Standard Chartered Global Research team has lowered their 2020 Growth Domestic Product (GDP) growth to 2.5 percent from 4.2 percent in order to reflect the impact on the local and external demand arising from the pandemic.

In an economic alert report by the bank, Standard Chartered believes that the private consumption being the main source of growth support may ease significantly in 2020. The report highlights that both domestic and external demand will be affected where domestically, increase infection cases and broad containment measures may affect local sentiment.

With restrictive measures expected to last for two weeks, this may lead to a result in consumption growth easing significantly from the +7.6 percent pace set in 2019.

Additionally, the report also points out that investment sentiment may also be affected in light of the hit to global growth outlook, with the pick-up in investment approvals for manufacturing investments and housing developments by private developers may be a potential tailwind. The worsening of the global growth sentiment may cause a delay in realisation of projects in the housing development and manufacturing sector.

However, Standard Chartered expects more rate cuts from the central bank and along with the government’s fiscal stimulus of MYR 20 billion, the downward pressure on growth should be mitigated by monetary and fiscal policy support.

The report states that the package will target assistance to sectors and individuals affected by the coronavirus outbreak and the government will also boost disposable income via a voluntary reduction in pension fund contribution and cash transfers to eligible recipients.

The bank is also expecting Bank Negara Malaysia (BNM) to cut the overnight policy rate by 25 basis points (bps) each in May and July, which would then bring the policy rate to 2 percent, matching the low of the global financial crisis period.

With the collapse of oil prices, this may depress prices in other commodities. However, with Malaysia’s economy being well diversified, commodity exports only make up 22 percent of total exports in 2019.

Standard Chartered is also urging the central bank to move faster and more aggressively by a 50 bps cut at the next decision. The bank believes that with the aggregate 50bps of rate cuts in the first quarter this year, it has provided some monetary policy room to respond in a more calibrated manner.

 

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