KUALA LUMPUR: Investment banks have trimmed their forecast of Malaysia’s gross domestic product (GDP) growth for this year to between 4% and 4.4% due to the Covid-19 outbreak.

According to Maybank Investment Bank Research, the revision was to reflect the impact of the Covid-19 outbreak on China’s economy and its spillover onto regional tourism-and-travel-related industries/sectors, global supply chain and world trade activities.

“We also adjusted this year’s forecast of net external demand decline to a slightly larger -2% from -1.7% previously as we factor in the lower-than-estimated actual 2019 growth of 8.9%.

“We maintain our 2020 forecasts for goods & services exports and imports of 1.1% and 1.5% respectively despite last year’s weaker-than-estimated numbers, hence lower base of -1.1% and -2.3% respectively, underscoring the outlook of tepid external trade recovery this year given the expected Covid-19’s transitory disruption to global supply chain and trade activities as well as volatility in commodity prices,” it said in a research note today.

RHB Research, which has lowered the growth forecast to 4% from 4.3% earlier, said the virus outbreak may not only cause lower tourist arrival but also lead to greater supply disruption in China and impact the rest of the world. 

“However, the planned government stimulus that is expected soon should somewhat provide an offset, with recovery likely to be seen in the second half of this year,” it said in a separate note.

Meanwhile, Ambank Research also concurred that downside on growth this year would likely be due to Covid-19.

“Thus, the economy is more likely to hover around 4% in 2020, which is our base case with the downside around 3% should adverse external shocks become more significant,” it said in a note today.

On the other hand, Public Investment Bank Bhd opined that downside risks to Malaysia’s growth potential can be stemmed through policy measures which include fiscal stimulus and monetary interventions, consisting of the overnight policy rate and the statutory reserve requirement.

“The government will roll out the former in due course, targeting affected industries like tourism, retails and airlines, should the Covid-19 outbreak prolong and inflict a larger-than-expected dent on the economy,” it said in a note today.

On the ringgit, it said the volatility is expected to continue this year given external challenges and downside risks to oil prices as well as the economic impact posed by China’s Covid-19 outbreak.

“Catalysts to ringgit, on the other hand, may come from Malaysia’s steady fundamentals and resilient trade. Our resilient aggregate consumption may also insulate the country from external challenges which is key during rising external uncertainties.

“Our rapid reform efforts, especially on institutional quality, are another factor that could endear Malaysia in the eyes of investors,” it said.

Nonetheless, the research firm said the ringgit may continue to face inherent risks from another round of policy intervention and downside risks for oil.

“In view of this, we have trimmed our 2020 ringgit projection to RM4.10 per US dollar from RM4.025 per US dollar previously on the back of ringgit that is expected to trade within a range of RM4.05 to RM4.15 per US dollar for the year,” it added. – Feb 13, 2020, Bernama

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