‘Malaysia more prepared for second wave’
KUALA LUMPUR: Malaysia is more prepared to moderate the shock of another possible movement control order (MCO) if it has to come to place to limit the spread of a possible second wave of Coronavirus Disease 2019 (Covid19) outbreak, analysts observed.
The research team at MIDF Amanah Investment Bank Bhd (MIDF Research) in its thematic report, opined that the government still has fiscal space to inject additional fiscal stimulus into the country while Bank Negara Malaysia also has sufficient room to further easy its monetary policy to support the economy.
Nevertheless, it highlighted that while the current situation does seem to be perturbing, it does not believe that Malaysia will reimpose a nationwide MCO.
“Following changes that had taken place after the full MCO earlier this year, we expect that the country has a greater ability to manoeuvre and adjust to the new normal while intensifying efforts to contain the resurgence of Covid-19 infections.
“The existing Standard Operating Procedures (SOPs) can be further tightened, without having to cause businesses to temporarily shut down their operations.
“From the MCO experience, we are concerned that a prolonged closure will once again hurt the business community, particularly the SMEs because they will face difficulty to retain their workers due to challenges from depleting cash flows and weaker sales,” MIDF Research commented.
In terms of policy space, it opined that the Federal
Government has the fiscal space to inject additional fiscal stimulus given the recent approval by the Parliament to temporarily raise the statutory debt ceiling from 55 per cent to 60 per cent of GDP.
“The formulation of fiscal stimulus programmes needs to be targeted to assist those who are most vulnerable and sectors that are significantly impacted by another round of restrictions,” it stressed.
MIDF Research also pointed out that the central bank has sufficient rooms to further ease monetary policy to support the economy.
“This is despite the Overnight Policy Rate (OPR) is already at historically low levels after the cumulative 125 basis points cuts earlier this year,” it added.
While Malaysia is prepared to handle a possible second wave, MIDF Research cautioned that the weaker economic activities would potentially result in another round of rationalisation as companies will struggle financially to maintain their business operations.
“The MCO earlier this year had caused the unemployment rate to increase from 3.3 per cent in February 2020 to as high as 5.3 per cent in May 2020. Based on the official labour market data from the Department of Statistics Malaysia, total employment fell by 456,600 during the period; of which, one-third decided to leave the labour force and the balance two-thirds or 300,900 contributed to the increase in the number of unemployed persons as they continue to search for different jobs opportunities,” it explained.
If another round of stricter MCO were to be implemented in the Klang Valley, MIDF Research warned that weaker economic activities in the region will have a significant adverse impact on Malaysia’s economy.
“If the targeted enhanced movement control order (TEMCO) in Klang Valley causes around 100,000 workers to lose their jobs as businesses struggle to maintain payrolls, this could result in the unemployment rate to increase to as high as 5.4 per cent from the latest 4.7 per cent in July 2020,” it said.
It also pointed out that sectors that would likely be affected by the restrictions will be wholesale and retail trade, which would see lower sales as a result of limited operating hours, reduced outside home consumption and more Malaysians will return to a full work-from home arrangement.
Other sectors which had benefited from the recent rise in domestic tourism, such as restaurants and accommodation services, could also once again hit by the travel restrictions and prohibition to accept dine-in customers.
“Although domestic consumption is expected to weaken because of TEMCO, the option to place orders online and the availability of home delivery will continue to contribute towards growth for the local consumption spending. Nonessential businesses, such as recreational services, and entertainment & leisure, will be hit by another round of closures and lower demand,” it added.
MIDF Research opined that a TEMCO for Klang Valley, the country’s largest and most productive conurbation, would alter the trajectory of Malaysia’s economic recovery in a negative way.