The economic impact of the novel coronavirus (2019-nCoV) is expected to be temporary based on the previous experience with the severe acute respiratory syndrome (SARS), according to MIDF Research.
The research house, which is maintaining its 2020 gross domestic product (GDP) growth forecast for Malaysia at 4.5 per cent, said the virus would not impact the economy directly, but indirectly through external trade and investment. MIDF Research noted that China was Malaysia’s largest trading partner, accounting for about 17 per cent of its trade. “However, at the current stage, we do not foresee any significant impact of the outbreak to Malaysian economy as we believe the threat is only temporary and will be contained,” it said in a note today.
MIDF Research said that economic growth slowed to 9.1 per cent during the peak of the SARS outbreak in the second quarter from 11.1 per cent in the first quarter. “All three industries — primary, secondary and tertiary — expanded at a softer pace . However, the economic growth quickly recovered to 10 per cent year-on-year in the following quarter,” it said.
Besides retaining its GDP forecast, the research house also maintains its 2020 export and import forecasts at 1.5 per cent and 0.8 per cent, respectively. Pending further insights on the coronavirus infection, MIDF Research also reiterated its year-end 2020 baseline target for the FTSE Bursa Malaysia KLCI at 1,680 points. Its baseline scenario is for the outbreak to be brought under control within the next six months, similar to the duration to contain the 2002/2003 SARS problem.
“We envisage that the equity market would be trapped in a cautious mood during the next three to five months. However, the additional region-wide financial liquidity (from further rate cuts by the People’s Bank of China in particular) may help to lend downside support. “As the total number of infected cases begins to dwindle, the market will regain its upward momentum and recover to levels prior to the onset of the outbreak,” MIDF Research said.
Turning to China, MIDF Research said the republic was expected to expand at a slower rate in the first quarter but this was not solely due to the virus. The outbreak coincided with Chinese New Year festival where factories as well as businesses shut down for at least two weeks and disrupted production up to two months, it said, adding that the first quarter was usually an off-peak period for the semiconductor industry as well.
The research house opined that the Chinese government’s swift actions, including injecting US$173 billion (RM713.1 billion) worth of liquidity and cutting short-term rates, could limit the coronavirus’ economic impact.