Published by Malay Mail & Malaysiakini, image from Malay Mail.
As hard as it is to grasp the reality of facing a recession caused by the unprecedented pandemic and not to be forgotten the collapse in oil price, it is really happening.
The International Monetary Fund (IMF) had just revised its global growth forecast, showing a total reversal from its previous estimate of 3.3 per cent in January to -3.0 per cent for 2020.
The more pessimistic projection is on the back of broad economic downturns: United States (-5.9 per cent), Euro Area (-7.5 per cent), Middle East and Central Asia (-2.8 per cent), Latin America and The Caribbean (-5.2 per cent), Sub-Saharan Africa (-1.6 per cent), and Emerging and Developing Asia (1.0 per cent).
This is because the world has been put in a Great Lockdown as no country is spared from the deadly virus.
Within Asean region, Malaysia is expected to be one of the laggards with a decline in growth by 1.7 per cent, which is within Bank Negara Malaysia’s (BNM) forecast range of -2.0 per cent to 0.5 per cent.
Several bank economists expect Malaysian economy to be at a poorer position this year with a plunge around 3.5 per cent in growth.
Nonetheless, global economies are expected to undergo rebounds in 2021 including Malaysia with a substantial expansion of 9.0 per cent. This is even higher than Fitch Ratings’ projection of 5.8 per cent.
To be mindful of the numbers, IMF baseline scenario is based on the expectation that the global pandemic would gradually disappear by second-half of 2020 (2H2020), which then could support the restoration of economic activity in 2021.
What happens if such will not be the case? This is not impossible given vaccines have yet to be finalised and the recovery process depends on how effective government policies are to support each part of the economy. Even the IMF is aware of this fact.
But, it obviously looks strange that despite this knowledge, no empirical exposition on this is done by the IMF when the consensus is for the pandemic to last between 12 to 18 months. That is how long the experts are aiming to deliver the vaccine.
The basis of the six-month duration for the pandemic held by the IMF obviously is based on the experience during the SARS outbreak in 2002-2003 but many feel that the current pandemic is more severe than SARS that it could outlast SARS’ six months.
Meanwhile, the chief statistician of the Statistics Department, Datuk Seri Dr Mohd Uzir Mahidin recently said the negative impact of movement control order (MCO) on the labour market would be reflected in the March’s unemployment data that is yet to be released.
This is due to the fact that many businesses are on pause or shutdown, leading to job losses. Concerns on the gloomy outlook of jobless rate have been raised given that MCO has not been lifted.
Income losses and movement restrictions have affected household sentiment and consumption, which put retail sector in a bad place. Thus, the Retail Group Malaysia (RGM) has lowered its projection to -5.5 per cent for this year.
Before the announcement of third phase of MCO, the Department of Statistics (DOSM) reported that most Malaysians are not financially prepared to bear further extension of MCO. The most vulnerable one is the self-employed in which respondents only have savings for less than a month.
On the health front, the Director-General of Health, Datuk Dr Noor Hisham Abdullah said the ministry has not been able to increase daily testing capacity for Covid-19 to reach its target of 16,500 tests per day. The current daily testing stands at 11,500 tests per day with the utilisation of 43 laboratories across the country.
These are some of the public information that have kept everyone in constant worries.
On the bright side, the government appears to be committed in supporting the rakyat as well as businesses amid this difficult time. Finance Minister Tengku Datuk Seri Zafrul Aziz indicated that six out of ten key measures under the Prihatin stimulus package have been rolled out so far, representing 69 per cent of the RM260 billion.
They include bank loan moratorium, Employees Provident Fund’s (EPF) i-Lestari withdrawal facility, wage subsidy programme, Bantuan Prihatin Nasional (BPN) payouts and Bank Negara Malaysia’s (BNM) special relief facility.
Furthermore, the number of Covid-19 cases on daily basis has also been trending below 200 and recovery rate is already at 53.4 per cent as of April 16. This means the quarantine order is working and there remains hope.
But really, the main exit strategy from the twin crisis is global cooperation coupled with transparent communication. Massive testing is critically needed now.
To do this, governments across the globe should expand collaboration by raising the production and distribution of medical supplies via global supply chains. In the end, countries would need each other to restart the economies via multiple channels such as trade.
Talking about trade cooperation, reduction in tariffs and non-tariff barriers that hamper cross-border trade and global supply chains should be re-negotiated.
Recent effort from the Asean, China, Japan and South Korea (Asean+3) to jointly fight the pandemic by keeping their markets open for trade and investment as well as enhancing cooperation to ensure adequate health supply, food security and sustainability of supply chain is the way to go.
Secondly, while fiscal stimulus has been lauded in addressing the short-term setbacks, policies need to be reviewed from time to time according to people’s needs. Subsequently, a long-term fiscal approach needs to be addressed because reviving the economy after MCO is another part of the story.
Should fiscal space become a concern going forward, policies can be re-scaled by targeting certain sectors. Restarting-mode measures such as hiring subsidies, worker re-training programmes and incentives to promote digitalisation are some of the components that need to be the centre of attention.
All in all, the right and timely policy support, alongside mutual cooperation are the main drivers to fight the pandemic and to restore our economy.
Therefore, it is still premature to gauge when will we see “light at the end of tunnel” to this pandemic, despite the optimism of the IMF that it could be in 2H2020. But these are all just projections and subject to changes, and so the proverbial light at the end of the tunnel remains elusive.
Nur Sofea Hasmira Azahar is Research Analyst at EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research.
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