‘Triple whammy’ troubles could push down Malaysia’s growth to 2%

The normally busy Petaling Street deserted as businesses close in Kuala Lumpur and other cities as part of the movement control measures to contain Covid-19.

KUALA LUMPUR: Malaysia’s economy is set to grow at its slowest pace since the 2009 financial crisis as it struggles with a trio of troubles: coronavirus, oil-price crash and political upheaval.

Analysts from Fitch Ratings to United Overseas Bank now expect Malaysia’s economy to grow about 2% this year. That compares with the government’s estimate that gross domestic product will expand 3.6%-4%, which already accounts for the virus’ impact.

Bank Negara Malaysia is set to release its annual report on the economy Wednesday, where it’s expected to revise its outlook.

Malaysia is grappling with the most cases of Covid-19, the disease caused by the coronavirus, in Southeast Asia. That prompted the government to ban overseas travel and close shops and schools from March 18-31.

An abrupt change in government last month and an ongoing price war in the oil market have compounded troubles for Malaysia.

“Malaysia is facing a triple whammy of political, oil price and coronavirus shocks,” said Thomas Rookmaaker, director of Asia-Pacific Sovereigns at Fitch Ratings.

Policy makers have unveiled a raft of measures to bolster the economy.

On Monday, Prime Minister Muhyiddin Yassin added cash handouts and electricity discounts to a RM20 billion package announced by his predecessor, while BNM cut the Statutory Reserve Ratio March 19 as part of moves to release RM30 billion of liquidity into the banking system.

The central bank has cut its policy rate to the lowest in a decade, most recently lowering rates by 25 basis points to 2.50% on March 3. It is due to meet again on rates May 5.

The moves “won’t help the economy in the sense of getting people back dining and shopping, but will ease pressure on the banking system, which is a good thing,” said Stephen Innes, chief market strategist at AxiCorp Ltd.

Here’s a selection of analyst views on Malaysia’s economy:

ING Groep NV

Malaysia’s outlook is “gloomier, with less than 2% growth” in 2020 versus an earlier estimate of 3%, said ING Groep NV’s Asia economist Prakash Sakpal, who isn’t ruling out that the economy could even contract. BNM may ease its benchmark interest rate by another 50 basis points given the benign inflation outlook, while the ringgit may remain among Asian underperformers due to oil prices, Sakpal said.

Kenanga Research

Kenanga expects growth to ease to 3.1% this year with a slowdown stretching across trade, services, manufacturing and consumption. It expects more fiscal measures to be announced, saying the government must add at least another RM3 billion to the stimulus package it announced last month. This would bring the budget deficit to 4.3% of GDP for 2020, from 3.4% currently.

United Overseas Bank

UOB is slashing Malaysia’s growth forecast to 2.4% in 2020, from 4%, said Julia Goh, a senior economist. The bank expects the ringgit to reach RM4.27 per dollar in the fourth quarter, from its initial expectation for RM4.05. She’s also concerned about the impact of deepening global risks related to Covid-19 and tightening U.S. dollar liquidity.

AxiCorp

“The repricing of the curve has nothing been short of dramatic as the markets expect the BNM to drop interest rates to 1.5% along with SRR by at least 50 basis point,” AxiCorp’s Innes said. “That pricing is reactive and suggests the markets expects a significant hit to growth, although arguably it’s difficult to quantify at this point in time.”

Fitch Ratings

The lockdown will depress economic activity in the short-term, but if successful, it could set the stage for a rebound in the second quarter or later in the year, Rookmaaker said.

However, the timing of any rebound is “becoming more uncertain given the weakening global outlook,” he said. With the previous forecast of 4.3% growth for Malaysia this year now “unattainable,” it may be revised to around 2.3%, Rookmaaker said. - FMT