MALAYSIA ended last year on a gloomy note as expected given the rollercoaster ride since the struck of unprecedented COVID-19 pandemic that has led to a crisis, the worst since the Asian Financial Crisis (AFC). We saw a deep contraction in gross domestic product (GDP) to 5.6% in 2020 as opposed to a growth of 4.3% in the previous year.
For this year, uncertainties remain in the picture while the Government tries to recover lives and livelihoods with the beginning of the National COVID-19 Immunisation Programme since the end of February, rollout of the stimulus packages as well as the gradual reopening of the economy.
According to the Health director-general Dr Noor Hisham Abdullah, as of Mar 9, a total of 195,923 individuals have been vaccinated in Phase 1 of the national immunisation programme.
Concurrently, the whole nation remains under the movement control order (MCO) albeit in different versions as the daily number of cases continue to be at four-digit.
Although inter-district travel restrictions have been eased, interstate travel is still banned in effort to combat the COVID-19 chain except for the states under recovery MCO (RMCO) but only by tour agency vehicles for the ease of monitoring, as recently announced.
Labour market condition appears challenging with businesses undergoing significant pressure on the back of the uncertain economic condition. Unemployment rate in January went up slightly to 4.9%, making the total of unemployed higher at 782,500 compared with 772,900 in December last year.
Data also shows that businesses remain cautious. Based on the Business Tendency statistics which display business expectations of their performances in the next three to six months, the outlook remains pessimistic in first quarter of this year (1Q 2020) with a double-digit contraction of 11.3%. This was higher than the preceding quarter with a contraction of 10.8%.
As a leading indicator for consumer spending, projections for retail sales this year are neither too optimistic nor too negative.
Retail Group Malaysia (RGM) had just revised its retail sales growth forecast downwards for this year from 4.9% to 4.1% because of the reinstatement of MCO in January and the interstate travel ban would limit recovery in spending.
Only for the first quarter, the Malaysia Retailers Association (MRA) and the RGM are already expecting the retail sales to drop by 13.4%.
The IHS Markit Manufacturing Purchasing Managers’ Index (PMI) which plays a role as the leading indicator of GDP growth as it quite correlates with the GDP according to historical trend also shows that the economy won’t do so well in the first quarter of this year.
In January, the PMI fell to 48.9 from 49.1 in December last year. Unfortunately, it slipped further in February to 47.7. These figures suggest that the pandemic has continued to take a toll on the Malaysia economy and provides a signal that the economy might not turn out too well in 1Q 2020.
Nevertheless, should we stay hopeful and expect a turnaround despite what is currently happening in Malaysia?
There are a few positive and encouraging possible scenarios to be considered to show that it might not be all gloom and doom in achieving the recovery.
One of them is the successful and smooth journey of the vaccination programme to achieve the goal of inoculating a large majority of the population. With this being done in a timely manner, the reopening of economy would continue to be supported.
On Monday, the Minister of Science, Technology and Innovation Khairy Jamaluddin said Malaysia will be purchasing additional Pfizer-BioNTech COVID-19 doses which is expected to be adequate to cover 50% of the population.
The other scenario can be based on Bank Negara Malaysia’s (BNM) economic outlook which influences the decision on interest rate.
On Mar 4, BNM retained the Overnight Policy Rate (OPR) at 1.75% instead of reducing it further by another 25 basis points.
The decision was on the basis that the economic recovery on the global scale is supported by steady improvements in trade and manufacturing activities, the rollout of vaccination programmes in several countries as well as the expansionary policies.
On the domestic front, BNM said, “While the re-imposition of containment measures will affect growth in the first quarter, the impact is expected to be less severe than that experienced in 2Q 2020. Going forward, growth is projected to improve from the second quarter onwards, driven by the recovery in global demand, increased public and private sector expenditure amid continued support from policy measures and more targeted containment measures.”
Therefore, this provides an encouraging signal that better days are expected. But this projection came with a note that downside risks should not be underplayed.
These would depend primarily on the ongoing uncertainties in developments related to the COVID-19 pandemic and the potential challenges that might affect the rollout of vaccines globally and domestically, i.e. logistics, safety, and virus mutation.
Finally, the support to economic recovery while trying to ensure smooth sailing vaccination programme would come from the implementation of government initiatives from the COVID-19 stimulus packages and Budget 2021.
This is of course, needs to come with effective and constant monitoring to ensure that the help do reach the targeted groups and the society is able to see and be made known of the real impact. – Mar 11, 2021
Sofea Azahar is Research Analyst at EMIR Research, a think tank focused on strategic policy recommendations based on rigorous research.