Analysts suggest economic recovery as soon as Q3

Malaysia’s economy may recover from extreme containment measures to stop the spread of Covid-19 in the third quarter before reaching its considerable potential in the fourth quarter, analysts said.

The expected rebound would be driven by the RM250 billion Prihatin stimulus measures, policy rate cuts by Bank Negara Malaysia, massive infrastructure spending and progress in public projects, they said.

They were commenting on Bank Negara’s forecast that the country’s 2020 gross domestic product (GDP) growth would be between -2.0 per cent and 0.5 per cent, down from the earlier projection of 3.2 per cent to 4.3 per cent.

Despite the potential in the second half of 2020. analysts agreed that the Covid-19 pandemic and subsequent containment measures by the government would adversely affect the local economy in the first six months, and ultimately drag the full-year GDP estimate to a contraction or the most, a small expansion.

Public Investment Bank Bhd Research (PublicInvest) expects the GDP to be at 0.3 per cent.

“Growth in 2020 will be supported in large part by the massive stimulus package worth RM250 billion (17 per cent of GDP) which is our largest in history, and one of the biggest in the region,” it said in a report today.

However, PublicInvest said this would be offset by the anticipated economic loss from the Covid-19, Mandatory Control Order (MCO) and commodity supply shocks.

“The growth forecast is still subject to changes given the still rapidly evolving Covid-19. Though the outlook is less-than-sanguine but economic activities are projected to recover in the second half (2H), driven at first by public-led initiatives to be followed by private-led initiatives which is usually the case during economic shocks.

“All in, we cautiously expect economic activities to accelerate and rebound in the 2H,” PublicInvest added.

AmBank Research said the first half of 2020 should witness negative growth due to weak global demand, supply chain disruption, travel restriction, the MCO, weak commodity prices and continued supply disruption in the commodity sector.

“But the economy is expected to improve in 2H, supported by fiscal and monetary measures,” AmResearch chief economist Anthony Dass said.

“Also, the ongoing improved engagement between policymakers and businesses should result in a faster implementation and better policy consistency,” Dass added.

Affin Hwang Capital’s GDP growth forecast is a contraction of -3.5 per cent. This is much lower than Bank Negara’s projection.

The main difference will be a sharply lower growth projection on domestic demand growth, which the firm projects at -4.0 per cent in 2020 (2019: 7.6 per cent), against Bank Negara’s 1.1 per cent.

“Our cautious view on the country’s domestic demand is partly due to the enforcement of the MCO from March 18 to April 14, whereby people’s movements are somewhat restricted, with restrictions of people exiting/leaving homes, closure of most businesses, and restrictions on entry of foreign tourists travelling into Malaysia,” Affin Hwang said.

The firm, however, said going into 2H of 2020, private consumption growth would not be normalised immediately as households might be impacted from possible shocks to their income and a slight erosion of purchasing power.

Households are also likely to be cautious on their spending due to the uncertain employment situation as well as affected by the expected slower growth in real disposable income.

“If Covid-19 prolongs, the possible shocks to household income and employment will weigh on consumer sentiment further, translating into weak consumer spending,” it said.

Affin Hwang expects Bank Negara to lower its Overnight Policy Rate (OPR) by another 25 basis points (bps) to 50 bps to 2.0-2.25 per cent, possibly in the next Monetary Policy Committee meeting on May 5 or even sooner.

This is due to the potential negative impact of the Covid-19 outbreak and the potential downside of low global oil prices on the domestic economy.

Bank Negara has already cut its OPR by a total of 50bps in its first two meetings of the year in January and March.

Source: NST