Limited impact from coronavirus on Malaysia’s economy

FILE PHOTO: A passenger wearing a mask walk outside the Shanghai railway station in Shanghai, China, as the country is hit by an outbreak of a new coronavirus, February 4, 2020. REUTERS/Aly Song

KUALA LUMPUR: RHB Research expects the impact from the novel coronavirus to be limited with most of the fallout to be seen in the first and second quarter of this year.

It said on Thursday the novel coronavirus still poses an uncertain downside given the ambiguity of its outcome. With the rate of infections surpassing that of SARS, chances of it becoming a global threat is high.

“However, swift action by the world’s governments could keep it contained. We believe fear of the virus is currently more sentiment driven as it still has a lower mortality rate compared to SARS, ” it said.

RHB Research still maintained its GDP forecast at 4.3% YoY for 2020.

“Judging by the limited impact of SARS to Malaysia’s GDP, alongside Bank Negara Malaysia’s recent rate cut and potential pump priming by the government, we think these upside risks serve as a fair balance.

“Nevertheless, if the current condition worsens, we think this viral outbreak has the potential to shave off up to 0.2% off annual GDP growth, with most of the impact to be seen in 1Q- 2Q20, ” it said.

To recap, it said SARS originated in mid-Nov 2002 in Guangdong Province, near Hong Kong. It peaked in April 2003, with some signs of being under control in June 2003.

Only in May 2004 did the World Health Organisation announce that China was free of further cases of SARS.

In total, SARS affected 8,000 people and caused 774 deaths worldwide, with a mortality rate at about 10%.

The current novel coronavirus outbreak has a lower mortality rate, but is more contagious, infecting over double the number of people to that of SARS.

“We highlight the impact to Malaysia’s GDP growth as well as the tourism-related sectors and exports during the SARS outbreak in 2002-2003.

“Our findings show that the impact to GDP and exports were limited although there was a marked decline in tourist arrivals at the peak of the SARS outbreak.

“Tourism-related sectors were faced with downside pressure although private consumption remained fairly robust, ” it said.

RHB Research said its analysis found that the SARS outbreak had very limited impact to Malaysia’s GDP growth.

Growth did soften from 6.9% YoY in 4Q02 to 4.6% in 3Q03, but the decline was mainly due to quarterly variations, particularly softer investment growth and lower government spending during that period.

Private consumption, on the other hand, remained robust, growing from 4.0% in 4Q02 to 8.2% in 3Q03.

Malaysia’s tourism industry significantly contributes to the country's economic growth – in 2018, it was 15.2% of GDP. Based on the SARS outbreak in 2002-2003, tourist arrivals declined by about 25% per annum.

Tourist arrivals in 2003 were lower at 10.6 million compared to 13.3 million in 2002. In fact, at the peak of the SARS outbreak in April 2003, tourist arrivals declined by 50% in a month from one million to 500,000.

“An unexpected drop in tourist arrivals could affect the Visit Malaysia Year 2020. The Government’s target for tourist arrivals is 30 million (2018: 25.8 million), with 3.2 million targeted arrivals from China.

“These targets are likely to be revised lower. We think the impact is likely to be most pronounced in the airlines, hotel, as well as physical retail sectors. Historically, the accommodation & restaurants, wholesale & retail and transport & storage sectors were negative at the peak of SARS outbreak although GDP growth remained resilient, ” it said.

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