Ram Ratings updates that Malaysia’s GDP growth at 4.3% in 2019 is lower than its forecast of 4.6%.
This is mainly attributable to supply-side downward pressure on the agriculture and mining sectors, as well as the slower-than-expected implementation of big-ticket projects last year.
Looking ahead, RAM maintained its forecast for 2020 at a cautiously optimistic 4.5% despite notable downside risks.
In particular, the rapid spread of the novel coronavirus and its impact on discretionary services and industries such as tourism, retail and F&B may dampen the services sector – the largest sectoral component of 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.
The key determinants of the impact of these downside risks are the length and severity of the epidemic. This could shave 0.2 to 0.5 percentage points off the country’s GDP growth projection for 2020.
This is currently RAM’s best estimate of the impact given the still-fluid situation and a lack of confirmed official data. That said, the potential support from monetary and fiscal policies will play an integral role in sustaining growth momentum. Expedient roll-out of projects as well as accommodative credit conditions are critical to driving growth this year amid such highly uncertain conditions, notes the rating agency.