This article first appeared in The Edge Financial Daily on March 13, 2020 - March 19, 2020

KUALA LUMPUR: Economic growth in Malaysia is expected to slow to 3.7% in 2020, as the Covid-19 situation continues to weigh on tourism, supply chains and household spending, said the Institute of Chartered Accountants in England and Wales (ICAEW).

The growth is expected to spring back to 4.5% in 2021, supported by accommodative macro policies and fiscal stimulus, ICAEW said in a statement on its latest economic update for Southeast Asia.

It said the impact from the Covid-19 situation on China’s economy will continue to spill over into Malaysia in the first and second quarters of 2020 through lower tourism flows, household spending and varying degrees of supply chain disruptions.

However, these headwinds are expected to be temporary.

Meanwhile, expansionary monetary policies and proactive boosts to fiscal spending will stabilise domestic demand and partially ease the impact of the virus situation.

Among these policies is the economic stimulus package announced by the Malaysian government, aimed at softening the impact of Covid-19 on the economy while preserving the welfare of citizens.

ICAEW economic adviser and Oxford Economics lead Asia economist Sian Fenner said while the impact of the Covid-19 outbreak will be larger than that of Severe Acute Respiratory Syndrome due to greater movement of people and interdependence of supply chains, most of the economic impact will be in the first quarter of 2020.

“Supported by accommodative macro policies, we will see growth recover in the second half of 2020,” said Fenner.

ICAEW said that despite the unexpected blow from Covid-19, export and import momentum across Southeast Asia is expected to improve significantly throughout the rest of the year, as production and people’s daily life get back to normal.

Moreover, the US-China Phase One trade deal and a recovery in the global electronics cycle in the second half of the year bode well for the region’s external outlook.

Overall, gross domestic product (GDP) growth across the region is forecast to fall to 4.2% in 2020, down from 4.5% in 2019, the slowest pace of growth since the 2008 global financial crisis.

ICAEW regional director for Greater China and Southeast Asia Mark Billington said that if the outbreak is prolonged, longer-term expenditures could be affected, slashing growth even further.

“At the moment, we expect the impact of Covid-19 to be high, but short-lived and cushioned by countries’ efforts to boost domestic demand,” he said.