Malaysian economy awaits MCO decision

11-Apr-2020 Intellasia | The Star | 7:06 AM Print This Post

The decision tomorrow on whether the month-long movement control order (MCO) will be extended would have an impact on the near-term economic outlook for the country.

Questions would then arise for the need of further economic stimulus packages, on top of the RM260bil announced previously by the government, if business shutdowns continue.

Bank Negara’s growth projection for 2020, in which it forecast an economic growth of -2% to 0.5%, has assumed that the MCO will end on April 14.

While the central bank expects safety measures such as social distancing and restricted gatherings to continue after April 14, a longer MCO will likely mount further pressure on domestic economic activities.

Socio-Economic Research Centre executive director Lee Heng Guie, who expects the Malaysian economy to contract by 3% in 2020, told StarBiz that the MCO extension will certainly put downside risk to projections.

“The further extension of MCO will continue to impact businesses of those non-essential services and also essential services as they are currently operating at 45-50% capacity.

“However, if the MCO is extended with some relaxation in allowing more economic sectors to operate, the economic loss impact on the economy will be somewhat shallow compared to the more restricted MCO during March 18 to April 14, ” he said.

Given that Malaysia’s manufacturing sector integrates deeply with global supply chains, Lee pointed out that the MCO-inflicted disruptions not only caused loss of sales through orders’ diversion but also “collateral damage” on a permanent basis.

“Malaysian small and medium enterprises participating in the global value chains are also affected by the shutdown of operations.

“Once we lose our markets to other foreign producers, it would be very difficult for us to regain them, ” he said.

In order to reduce the impact on the economy, Lee said more industries should be allowed to operate even if the MCO is extended.

However, these companies must be made to bear the responsibility to maintain and undertake the necessary health protective measures at all times to prevent the spreading of the Covid-19.

“The enforcement agencies will conduct sporadic checks on the sites to ensure the full compliance of health prevention. The failure to comply will be subjected to a closure of operation, ” stated Lee.

Prime Minister Muhyiddin Yassin is expected to announce a decision on the MCO tomorrow.

Bank Islam chief economist Mohd Afzanizam Abdul Rashid (pic below) was asked whether the government should announce more stimulus measures if the MCO is continued.

Mohd Afzanizam said the existing measures such as wage subsidies are meant to last for three months and have covered various income levels.

“In that sense, the present measures should be able to mitigate the impact. What is more important now is to ensure the measures will reach its targeted group more effectively and in a timely manner.

“We believe the government has the flexibility to prescribe additional allocation for wage subsidies, ” he said.

In the event the government needs to raise more cash to pay for the stimulus measures, Mohd Afzanizam pointed out that Malaysia has deep capital markets and long term investors such as pension funds, asset managers and insurance companies, which would be able to subscribe to the government’s bonds and sukuk issuances.

Meanwhile, AmBank Group chief economist Anthony Dass (pic below) said pressure is building on governments, including Malaysia, to lift the MCO because of the mounting economic costs from the measures to contain the Covid-19 spread.

“In our gross domestic product growth projection for 2020 of -2% to 0.4%, we took into account the MCO until the end of April.

“We felt that to lift the MCO, it will have to be supported by a consistent drop in the number of cases. The risk of relaxing MCO and then being hit by a new wave of coronavirus impact and faced with another round of lockdown will be extremely detrimental, ” he said.

He cautioned that demand will remain weak even if the MCO is lifted anytime soon, largely due to travel aversion and social distancing.

Dass believes that the RM260bil stimulus measures announced by the government will continue to support growth despite the MCO.

“Any improvement to the economy is expected in the second half of 2020 (2H20), supported by fiscal and monetary measures. Besides, should China get back to normal before the US, that should also lend support to our economy.

“We feel consumers and business confidence will improve from the better engagement between policymakers and businesses in 2H20. We can expect faster implementation and better policy consistency by the new government, ” he said.


Category: Malaysia

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