Moody’s slashes Malaysia’s 2020 GDP growth forecast to 3% on risks

PETALING JAYA: Moody’s Investors Service has revised downwards its gross domestic product (GDP) growth forecast for Malaysia to 3.0% in 2020, and 4.7% in 2021, in view of current risks.

Last month, it had said the country’s 2020 real GDP growth should slow to 4.2% from the 10-year low of 4.3% in 2019.

“The combination of weaker global growth and heightened containment measures related to the coronavirus outbreak, as well as a recent sharp drop in oil prices, have prompted us to further lower our GDP growth forecasts for much of Asia Pacific in 2020 – even assuming a recovery in the second half of the year, ” it said in a report yesterday.

Even with these weaker assumptions, it added, risks to growth were firmly to the downside – in particular, if growth in Europe and the United States declines more than currently expected.

“In addition, rising rates of coronavirus infection would drive global sentiment even lower, heightening asset price volatility, and tightening financing conditions, which could snowball into deeper economic contraction in Asia and beyond, ” it said.

Elsewhere in the region, it sees China’s economy expanding 4.8% in 2020, before picking up to 5.5% in 2021, as economic activity slowly resumes and export demand remains weak.

It estimates that Macao will slump 20.0% in 2020, marking its second year of contraction, following a 4.7% drop in 2019 and reflecting its reliance on tourism and the gaming sector, as well as its close proximity to China.

Likewise, it said Hong Kong’s economy – which has also been buffeted by trade tensions and local protests – will shrink by 3.5%, after a 1.3% fall in 2019.

It added that it no longer expects Japan’s and Singapore’s economies to expand this year.

“Despite the challenges, many of the region’s most severely hit economies enter this period with substantial policy buffers, which the local authorities are using to prop up growth.

“A number of governments have revealed fiscal stimulus packages or budgets featuring temporary and targeted measures to deal with the immediate impact of the coronavirus outbreak on households and affected sectors, ” it said in a report yesterday.

Hong Kong and Singapore, it noted, had included substantial fiscal stimulus worth about 4.2% of GDP in 2020 and 1.3%, respectively, as part of their annual budgets.

It added that Australia had rolled out a set of economic relief measures totaling 0.9% of GDP in early March.

However, it noted that some governments – such as Pakistan and Sri Lanka – may be constrained by already high indebtedness and limited access to funding.

“Central banks and financial regulators have started to ease policy rates or allowed regulatory forbearance, although the extent of further easing may be limited by already very low rates in some economies, ” it said.

The report also noted that the escalation of the Covid-19 pandemic in the Asia-Pacific region will prompt significant economic weakening, as slowing domestic consumption worsens disruptions to supply chains and cross-border trade of goods and services.