THE novel coronavirus (Covid-19) outbreak could result in lower economic growth for Malaysia and cut its gross domestic product (GDP) by up to 2%, warned economists.

This warning comes as Bank Negara Malaysia announced that Malaysia’s economy expanded by only 3.6% in the fourth quarter of 2019, dragging the full-year GDP growth down to 4.3%,  the lowest since the 2009 financial crisis, amid supply disruptions in the commodity sector.

In 2018, GDP growth was 4.7%.

Bank Negara governor Nor Shamsiah Mohd Yunus said yesterday the Covid-19 outbreak is expected to affect Malaysia’s GDP growth for Q1 2020, depending on how the virus spreads and evolves.

Lower economic growth will mean higher unemployment figures, lower incomes and profits, and poorer standard of living.

The World Bank had projected that Malaysia’s GDP will grow at 4.5% this year. However, the forecast was made prior to the outbreak of the virus in Wuhan, China last month, which has thus far claimed more than 1,000 lives.

Malaysian Institute of Economic Research (MIER) senior fellow Shankaran Nambiar said it will be good enough if Malaysia manages to record a full year GDP growth of 4.2% for 2020 in view of the far-reaching effects of the virus and its impact on China.

Apart from Malaysia’s strong links to China, the slowdown in global travel and the softer domestic retail market is likely to dampen growth.

He, however, said the 4.2% GDP growth is possible assuming the government comes out with a broad and generous stimulus package quickly.

“It is worth noting in this context that concerns over the virus outbreak will lead to a drop in oil prices, an important contributor to government revenues,” he said.

Brent Crude Oil traded at US$65.20 per barrel on January 20. However, at the time of writing (February 12) it was trending at US$54.92.

Meanwhile, Sunway Business School economics professor Yeah Kim Leng said he is maintaining his 4.5% forecast for now.

“For now, my baseline projection remains at 4.5% GDP growth, one that straddles the optimistic and pessimistic scenarios,” he told The Malaysian Insight.

He said the impact could be offset by pent-up demand in the coming quarters.

“However, under a pessimistic scenario of the outbreak tapering off in the second half of the year, we could see half a percentage point being shaved from the GDP growth projected for this year while a worse case could reduce growth by between 1% and 2%,” he said.

Socio-Economic Research Centre executive director Lee Heng Guie also maintained his baseline projection of 4.5% for the time being.

However, he said, the GDP could potentially lose between 0.5% and 1% depending on the severity of the situation.

He said if the outbreak prolongs, then the supply of raw materials will be affected as it is mostly sourced from China.

“What concerns us the most is that the logistic sector in China is impacted because the priority now is for factories to produce essential products such as medical products and the cities are locked down too,” he said.

China recorded a GDP growth of 6.1% in 2019, its lowest in 29 years.

The country is also Malaysia’s biggest trading partner, accounting for 17.2% of total trade in 2019.

Chinese think-tank National Institute for Finance and Development has projected China to lose between 0.2% and 1% from its full year GDP.

The institute’s vice-chair Zeng Gang said if the official response to the epidemic is timely and effective at limiting its spread, there will not be a significant effect on long-term growth trends.

Moody’s Analytics has revised its forecast for China’s GDP from 6.1% to 5.3%, adding that there is a higher risk if the epidemic lasts beyond February.

The novel coronavirus, which started spreading in Wuhan, China, since late last year has seen far more fatalities than SARS as the death toll passed 1,000 and left 40,000 people ill. – February 13, 2020.