This article first appeared in The Edge Financial Daily on February 12, 2020 - February 18, 2020

KUALA LUMPUR: All eyes will be on Bank Negara Malaysia’s (BNM) assessment of the nation’s economy at its media conference today, amid expectations of slower growth in the final quarter of 2019 (4Q19) and the Wuhan virus’ ripple effects.

More importantly, aside from the 4Q gross domestic product (GDP) scheduled to be released today, market watchers will be seeking cues from Bank Negara Malaysia’s (BNM) governor Datuk Nor Shamsiah Mohd Yunus on BNM’s input for the economic stimulus package that Putrajaya had promised to deliver over the next few weeks.

“The 4Q19 numbers will set the tone on what to expect this year, with current concerns over the virus outbreak, and the consequential impact on China’s trading partners, including Malaysia,” Socio-Economic Research Centre executive director and economist Lee Heng Guie told The Edge Financial Daily.

“I would expect them (BNM) to give some guidance on how they will work together with the various ministries and key agencies to manage this short-term disruption,” said Lee when contacted.

Economists are expecting GDP growth to decelerate in 4Q19, compared with that in the previous quarter, dragged by weaker exports and private investments, coupled with a weak performance in major sectors amid the US-China trade war.

The headwinds prompted BNM to cut the overnight policy rate (OPR) by 25 basis points (bps) in January to 2.75% — a nine-year low.

Now, the virus outbreak is taking a toll on private consumption, the prime mover of the economy in recent times.

On Monday, the Malaysian Association of Hotels said as at Saturday, there were 95,972 room cancellations amid the outbreak, resulting in a revenue loss of RM40 million.

In a research note published yesterday, CGS-CIMB expects Malaysia to “remain stuck in a low-growth environment in 1Q20” as weaknesses in commodities spilled over into other segments.

“While there are considerable uncertainties about the economic impact from the virus outbreak, we estimate a 0.5% could be shaved off Malaysia’s GDP growth in 1Q20 due to the direct impact of restricted travel on tourism, transportation and consumer spending, as well as a weaker export demand for commodities and manufactured goods from China’s slowing economic expansion,” said the research house.

However, the ministry of finance had set a deadline for the economic stimulus package release to address the virus outbreak’s impact by end-February or early March.

Separately, the economic affairs ministry has identified the tourism, retail and aviation industries as the stimulus package’s main recipients, according to reports.

Earlier this week, Malaysian banks began offering assistance to individuals as well as small and medium enterprises impacted by the virus outbreak.

CGS-CIMB estimated the stimulus package “could be in the ballpark” of RM8.1 billion spent during the severe acute respiratory syndrome outbreak in 2003. That, it said, is equivalent to 0.5% of Malaysia’s GDP in today’s terms.

“We expect the policy mix to be strengthened by a further dose of monetary easing, and project BNM to reduce the OPR by a further 25bps to 2.50% in 1H2020 (the first half of this year),” the research house added.

Meanwhile, Lee recommends that government projects be expedited along with small measures such as a freeze on tourism tax, a voluntary reduction in pension fund contribution, and a close monitoring of potential lay-offs that would emerge in the affected sectors.

“If there is a need for a higher budget deficit [from the targeted 3.2%], I am sure the government still can do some outright targeted spending.

“The government could also set up funds to provide financing at a lower rate,” he added. “It is inevitable that the headwinds will impact the economy, but these measures are in the right direction to ease the economic pain.”

The government has forecast a GDP growth of 4.7% for 2019, within the central bank’s expected 4.3% to 4.8%. Economists polled on Bloomberg expect a median GDP growth of 4.5% for 2019 and 4.1% for 4Q19.