Slower global growth due to Covid 19 to dampen local economy in Q1

KUALA LUMPUR The slower global growth due to the Covid 19 outbreak is expected to continue to dampen the local economy in the first quarter of this year (Q1 2020).

RAM Ratings Services Bhd said that the rapid spread of the virus and its impact on discretionary services and industries such as tourism, retail, and food and beverages would dampen the services sector, which is the largest sectoral component of the gross domestic product (GDP).

Supply chains, especially those most strongly linked to China, will be affected by temporary factory closures. Exports of goods for both industrial and household consumption will moderate amid more sluggish external demand and lower production, it said in a statement today.

RAM Ratings said the key determinants of the impact of these downside risks are the length and severity of the epidemic which could shave 0.2 to 0.5 percentage points off the 2020 GDP projection growth.

Looking ahead, we maintained our forecast for 2020 GDP at a cautiously optimistic 4.5 per cent despite notable downside risks, it said.

Meanwhile, IHS Markit Asia Pacific chief economist Rajiv Biswas said the decline in public investment spending and continued softness in electronics exports weighed on the overall pace of growth in 2019.

However, the outlook for 2020 is subject to greater downside risks due to the economic shock from the Covid 19 outbreak in China, which has impacted Chinese tourist visits to other Asian countries.

The economic shockwaves from the Covid 19 epidemic in China has also increased the downside risks to Malaysia’s GDP growth outlook in 2020, he said.

He added that the growth momentum in the Q1 2020 could be significantly impacted by weaker Chinese tourist arrivals, as well as weaker new orders from China for manufactured goods and raw materials, due to a significant disruption in industrial production.

On the equity and ringgit performance, IQI Global Chief Economist Shan Saeed said the local bourse would remain soft as investors prefer to remain sideways currently due to increasing global uncertainty.

However, we believe that as the dust settles, investors would revisit their portfolio strategies going forward once valuation meets their expectation, he told Bernama.

Following the lower than expected GDP announcement earlier today, the FBM KLCI declined 7.86 points to 1,543.62 as at 3 pm.

As for the ringgit valuation, Shan said the local note would follow the valuation of Chinese yuan, as well as oil price movement this year.

We expect the local note to trade between 3.97 and 4.3 this year, he said.

As at 3pm, the ringgit was quoted at 4.1370/1410, slightly lower than Tuesday’s close of 4.1320/1350.

Earlier today, Bank Negara Malaysia announced that the local economy expanded by 3.6 per cent in the fourth quarter of 2019, dragging the full year GDP growth to 4.3 per cent, the lowest since the 2009 financial crisis.

Governor Datuk Nor Shamsiah Mohd Yunus said the economic performance was achieved amid supply disruptions in the commodity sector.

The central bank also said that the Covid 19 outbreak is expected to affect Malaysia’s GDP growth for Q1 2020, depending on how the virus spreads and evolves.

Headline inflation was lower at 1.0 per cent for Q4 2019, pulling the overall 2019 inflation rate at 0.7 per cent.

Source: BERNAMA (News Agency)