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Analysts suggest economic recovery as soon as Q3

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 

Posted on : 07 April 2020
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