KUALA LUMPUR (Feb 21): The Malaysian Institute of Economic Research (MIER) does not rule out Bank Negara Malaysia making further reductions to the overnight policy rate (OPR) to mitigate the impact of the Covid-19 outbreak on the economy.

MIER chairman Tan Sri Kamal Salih said it was not impossible given the weak state of the economy.

“So, cutting OPR is very important and it would cushion the impact of this outbreak of the virus,” he said at a press conference after MIER’s briefing on how Covid-19 would affect the economy.

On Jan 22, the central bank cut the OPR by 25 basis point to 2.75%, bringing it to its lowest level since March 2011.

He noted that Malaysia’s gross domestic product (GDP) grew at only 4.3% in 2019, which is below the 4.6% that MIER had forecast.

Malaysia GDP growth in the fourth quarter of 2019 slowed to 3.6%, dragging the full-year GDP growth to 4.3%, the lowest since the 2009 financial crisis.

“I cannot say [the impact from Covid-19 on GDP growth] until I see the figure. But the GDP estimation [for this year] will need to be adjusted,” he said.

He added that MIER would be “consistent with others” in downgrading the GDP performance for this year.

Fitch Solutions has revised down its 2020 real GDP growth forecast for Malaysia to 3.7% from 4.5% previously, while the World Bank also said it is studying the impact of the virus outbreak after revising down Malaysia’s GDP growth to 4.5% from 4.6% previously.

Further, Kamal said Malaysia's GDP in 2019 grew at a slower pace at 4.3% before the outbreak of the virus, which is already lower than the 4.6% GDP growth projection done by MIER. With the outbreak of Covid-19, he said the economy is likely to be hit further by this epidemic.

He added that while MIER does not expect a recession to happen due to the viral epidemic, it does not rule out the possibility, as growth has slowed over the past decade.

“Singapore is facing a far more serious problem, as they are expecting even a recession (for the economy) and with a negative number for growth. If that happens, the contagion effect for Malaysia will be part of the problem we need to handle,” he added.

It was reported that Singapore is expecting possibly even slower growth in 2020 amid concerns about the ongoing Covid-19 outbreak.

Singapore’s government has downgraded its GDP forecast to as low as a 0.5% contraction, compared with growth ranging from 0.5% to 2.5% previously.

The institute expects the Covid-19 outbreak to impact tourism, consumer spending and trade, resulting in a contraction of Malaysia’s GDP by between 0.15% and 0.77% in the first quarter of 2020.

It expects spending by Chinese tourists to decline by 25% and unemployment in tourism-related sectors to go up by 0.5% to 3.5%.