The research arm of Kenanga Investment Bank Bhd (Kenanga Research) views that while the nationwide movement restriction to contain the spread of the novel coronavirus (Covid-19) will adversely affect the economy in the short term, such impact will be limited.
“Given the fact that there is an exception for important government and business services to run as usual and the restriction will last for two weeks period, the full impact would depend on how fast the virus spread, and the period taken to combat the outbreak should there be an extension in movement restriction,” Kenanga Research told The Borneo Post.
In this regard, Kenanga Research’s maintains that the base case forecast for GDP growth will moderate by 2.3% in the first half of 2020, as opposed to 3.6% in the second half of 2019.
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This is mainly because of the weaker growth expectation in the services sector, considering that the virus will affect industries like transportation and tourism.
Even if the downside risk has elevated, Kenanga Research factored in the “potential economic consequences” in Malaysia’s recent gross domestic product (GDP) forecast.
“Similarly, the manufacturing sector slowdown (1.2%; H219: 3.3%) following supply disruption due to factory closure, and weak external demand from the key trading partner is expected to contribute to the slower growth momentum”, it added.
Private consumption, on the other hand, is expected to ease further to 5.7% in the first half of the year. This will bring the GDP rate to 3.1% this year.
However, considering that Covid-19 has been declared as a global pandemic, Kenanga Research opined that an extraordinary fiscal expansion is necessary to prevent the economy from slowing or avoid a possible recession.
Thus, the research arm figured that the government needs to add at least RM3 billion to the fiscal stimulus.
For instance, the Perikatan Nasional government provided additional stimulus worth RM0.62 billion or 0.04% of GDP on top of the RM20 billion stimulus package previously allotted by the preceding Pakatan Harapan government.
“Based on our forecast, this brings the fiscal deficit to 4.3% of GDP for 2020, from an earlier projection of 3.7% based on RM3.5 billion government direct contribution to the total RM20 billion stimulus package to address the Covid-19 impact (as about half or RM10 billion is funded by a 4% reduction in employees’ Employees Provident Fund (EPF) contribution and much of the balance by Bank Negara Malaysia’s (BNM) balance sheet)”, Kenanga Research explained.
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