Kenanga Research: 2Q GDP growth expected to fall sharply

KUALA LUMPUR: Malaysia’s gross domestic product (GDP) growth is expected to fall sharply in the second quarter of 2020 (2Q20), and there is a high probability that the fall would continue until the second half of this year due to lingering effects from the Covid-19 pandemic.

However, Kenanga Research said economic growth would gradually recover in 4Q20, supported by the sizable fiscal and monetary policy stimuli.

“The Covid-19 impact is expected to weigh heavily on 2Q20’s economic growth and could possibly extend towards the year-end following the lockdown and social distancing measures to manage the contagion.

“This would further disrupt the supply chain and demand for goods and services in an unprecedented proportion,” it said in a research note today.

The research firm said the services sector, specifically the tourism-related industry and transportation, would continue to be affected the most due to travel restrictions imposed globally.

Meanwhile, it said the manufacturing industry, particularly the export-oriented industries, would have to endure a prolonged supply chain disruption due to the movement restriction and sluggish external demand.

“Renewed US-China trade tension after the US Republican senator proposed a legislation that authorised President Donald Trump to impose sanctions on China over Covid-19 probe would weigh on global trade and shake the commodity market in the immediate term.

“Shipping giant Maersk warned that if its prediction of a 20%-25% fall in shipping demand in 2Q20 comes true, it would be ‘the biggest drop on record’, reaffirming the World Trade Organisation’s forecast of a 13%-32% fall in global merchandise trade in 2020,” it added.

Kenanga said the premature reopening of the economy resulted in new clusters of infections in major economies especially in South Korea, China and Germany, which are expected to shake the financial markets.

This may lead to an even longer and stricter lockdown measures, potentially dragging the economy into a protracted growth or a U-shaped trend.

“Against this backdrop, we are revising our 2Q20 growth forecast to drop even lower to -7.5%, from an initial projection of -4.9%.

“As such, our preliminary adjusted 2020 GDP growth forecast would be -2.9% from -1.9% previously,” it said. – May 14, 2020, Bernama

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