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Malaysia's central bank says economy could shrink in 2020 due to coronavirus

KUALA LUMPUR (Reuters) - Malaysia’s central bank said on Friday the economy could shrink by as much as 2% or grow 0.5% this year due to the coronavirus pandemic, in what would be its worst economic performance in more than a decade.

FILE PHOTO: A general view of the Central Bank of Malaysia (Bank Negara Malaysia) in Kuala Lumpur, Malaysia, July 31, 2019. Picture taken July 31, 2019. REUTERS/Lim Huey Teng

Malaysia, which has the highest number of reported coronavirus infections in Southeast Asia with more than 3,100 cases and 50 deaths, is in the middle of month-long restrictions on travel and non-essential business that have hit trade and tourism.

“We are mindful that the situation surrounding COVID-19 is highly fluid and the situation is constantly shifting,” Bank Negara Malaysia’s (BNM) governor, Nor Shamsiah Mohd Yunus, told a virtual news conference, referring to the disease caused by the coronavirus.

“The GDP forecast... is our best estimate based on what we know today. Great uncertainty remains.”

Nor Shamsiah said the economy, nevertheless, would be supported by the government’s stimulus measures and the bank’s policy rate cuts.

She said the bank’s monetary policy stance remained accommodative and that it could deploy “policy levers” to cushion the impact of the virus. Its next monetary policy meeting is due on May 5.

BNM said Malaysia’s goods and services exports could slump 8.7% this year as its key customers get hammered by the pandemic. Exports dipped 0.8% last year.

Southeast Asia’s third-largest economy last reported economic growth below zero in 2009 due to the global financial crisis. The economy grew 4.3% last year.

The World Bank has forecast that Malaysia’s economy would contract 0.1% this year.

BNM said inflation was expected to average between -1.5% and 0.5% in 2020, lower than last year’s 0.7%.

It said monetary operations would continue to support liquidity in the foreign exchange, bond and money markets.

“The bank will ensure uninterrupted financial intermediation in the environment of heightened financial market volatility,” it said.

Separately, index provider FTSE Russell gave Malaysia another six months to improve market conditions to stay on in the World Government Bond Index.

The bonds were first put on a review for a downgrade in April last year, prompting BNM to announce measures to enhance liquidity in a bid to avoid a damaging exit from the benchmark.

Reporting by Rozanna Latiff; Editing by Sam Holmes & Simon Cameron-Moore

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