KUALA LUMPUR (March 12): Economic growth in Malaysia is expected to slow to 3.7% in 2020, as the novel coronavirus (COVID-19) situation continues to weigh on tourism, supply chains and household spending, according to the Institute of Chartered Accountants in England and Wales’s (ICAEW) latest Economic Update: South-East Asia report.
In a statement today, ICAEW, however, said growth is expected to spring back to 4.5% in 2021, supported by accommodative macro policies and fiscal stimulus.
It said impact from the COVID-19 situation on China’s economy will continue to spill over to Malaysia in the first and second quarters of 2020 through lower tourism flows, household spending and varying degrees of supply chain disruptions.
However, these headwinds are expected to be temporary.
Meanwhile, expansionary monetary policy and proactive boosts to fiscal spending will stabilise domestic demand and partially ease the impact of the virus situation.
Among these policies are the economic stimulus package announced by the Malaysian government, aimed at softening the impact of COVID-19 on the economy while preserving the welfare of citizens.
ICAEW Economic Advisor & Oxford Economics Lead Asia Economist Sian Fenner said while the impact of the COVID-19 outbreak will be larger than that of SARS due to greater movement of people and interdependence of supply chains, most of the economic impact will be in the first quarter of 2020.
“Supported by accommodative macro policies, we will see growth recover in the second half of 2020,” said Fenner.
ICAEW said despite the unexpected blow from COVID-19, export and import momentum across Southeast Asia is expected to improve significantly throughout the rest of the year, as production and people’s daily life get back to normal.
Moreover, the US-China phase one trade deal and a recovery in the global electronics cycle in the second half of the year bode well for the region’s external outlook.
Overall, gross domestic product growth across the region is forecast to fall to 4.2% in 2020, down from 4.5% in 2019, the slowest pace of growth since the 2008 global financial crisis.
ICAEW Regional Director, Greater China and South-East Asia Mark Billington said that if the outbreak is prolonged, longer-term expenditures could be affected, slashing growth even further.
“At the moment, we expect the impact of COVID-19 to be high, but short-lived and cushioned by countries’ efforts to boost domestic demand,” he said.