OCBC Research sees Covid-19 shaving 0.4 pct point off Malaysia 1Q GDP

  • Economy
  • Friday, 14 Feb 2020

Medical workers in protective suits attend to novel coronavirus patients at the ICU of a Wuhan hospital. An undisclosed number of doctors and nurses have succumbed to the infection in the line of duty. — China Daily via Reuters

KUALA LUMPUR: OCBC Treasury Research expects the impact of the Covid-18 coronavirus to be around 0.4 percentage points of gross domestic product (GDP) in the first quarter.

In its research note issued on Friday it said the impact from the virus was based on the assumption the viral infection itself does not become a more major issue within the country.

“Given the slow momentum from the GDP data from 44 2019 that was just released, this would compound the slowdown even more and compelled us to downgrade the forecast for Q1 GDP to 3.5%.

“For the full year of 2020, we now expect growth of 4.0%, compared to our already fairly conservative 4.2%, ” it said in its economic outlook for Malaysia, which is part of the regional coverage on the impact of the virus.

OCBC Research said that in terms of policy action, it sees a good chance of another rate cut by Bank Negara Malaysia in the upcoming meeting on March 3, bringing the OPR to 2.5% after cutting it by 25bp in January.

It said due to the ongoing fallout from the Covid-19 Bank Negara may be more inclined to act now because of the virus threat.

It also pointed out that any fiscal stimulus package by the government will likely be very limited because of the debt constraints.

As for Singapore, it said the outbreak has cast a dark cloud over 2020 GDP growth prospects.

It said the falllout from the virus could potentially shaved off 0.5 and 1 percentage point from the baseline, depending if the current epidemic is mild or severe.

“Hence, we had widened our 2020 growth forecast to 0%-2% from 1%-2% on Jan 30 to factor in the downside risks from the coronavirus, ” it said.

As for China, which is the epicentre of the outbreak, the near-term shock to the Chinese economy is going to be significant.

“We expect the 1Q 2020 growth to contract by 0.5% qoq, which will translate to about 4.1% yoy. The hit to the economy will also be larger as compared to the SARS outbreak, because of some key differences between now and then, ” it said.

OCBC Research said outside of China, one of the worst hit economies by the Covid-19 is likely to be Thailand.

“Given its reliance on Chinese tourism receipts, the Thai economy had already been reeling from the US-China trade war last year when the coronavirus threatens to further derail growth via the tourism sector, ” it said.

It pointed out the Bank of Thailand has responded by cutting its key benchmark rate by 25bp to 0.75%.

“But we think they could likely ease monetary policy further if the impact on tourism and manufactured goods is larger than initially feared. The drought in Northeast Thailand – the worst in forty years – is not helping matters.

“We initially forecasted 2020 GDP growth at 2.6%, but we think that might be eventually watered down to 2%, ” it said.

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Covid-19 , OCBC Treasury Research , impact , growth


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