Ripple effect of lockdown far more extensive
The ripple effect of Malaysia’s current lockdown is far more extensive, with export growth now slowing down due to the limitations being put in place to manage the Covid-19 situation, Moody’s Analytics observed
KUCHING: The ripple effect of Malaysia’s current lockdown is far more extensive, with export growth now slowing down due to the limitations being put in place to manage the Covid-19 situation, Moody’s Analytics observed.
Moody’s Analytics associate economist Sonia Zhu in an analysis report, pointed out that the government has extended the lockdown indefinitely until daily Covid-19 cases fall below 4,000.
However, the seven-day moving average shows a resurgence of Covid-19 infections since the end of June.
Yesterday, Malaysia recorded its highest number of new daily cases at 9,180.
“At the current rate of infection, we expect the lockdown to last through July, which will inevitably take a toll on unemployment. The balance of risks remains tilted to the downside, and the recent political contention between the UMNO political party and Prime Minister Tan Sri Muhyiddin Yassin adds an additional layer of uncertainty to the recovery outlook,” Zhu remarked.
She also pointed out that the ripple effect of lockdown is far more extensive.
“Malaysia’s growth in the second quarter was largely powered by strong exports, but export growth is losing steam against the backdrop of lockdown and limited operation capacity. The lockdown has stymied production, and business confidence dropped to a new low. Malaysia’s PMI for June fell to April 2020 levels, at 39.9, down sharply from 51.3 in May, underscoring the severity of the lockdown on manufacturing and trade industries,” Zhu said.
Although the government permits manufacturing operations at 60 per cent capacity, some companies such as Top Glove, Honda, and Toyota have decided to temporarily halt production. The region serves as a key manufacturing hub for exports. The surging cases and lockdown restrictions threaten to disrupt global manufacturing and Malaysia’s trade performance.
“On an encouraging note, Malaysia is making good progress with its vaccination programme. In just a month, the percentage of the population that has received at least one dose of the Covid-19 vaccine increased from seven per cent to 20 per cent. This adds confidence to Malaysia achieving herd resilience by the end of 2021, putting Malaysia on the path to economic reopening and normalisation,” Zhu said.
Meanwhile, on Bank Negara Malaysia’s (BNM) decision to hold the overnight policy rate (OPR) at 1.75 per cent, the economist noted that the central bank maintained its accommodative monetary policy stance, keeping the benchmark rate at the historic low of 1.75 per cent.
“BNM stood pat in July’s meeting due to two considerations. First, fiscal stimulus will do the heavy lifting in supporting the economy.
“The government previously released one of the largest fiscal stimulus packages, worth US$36 billion, which included cash handouts, wage support, and debt moratorium to cushion the economy from the costly lockdown. Second, any rate cuts will risk destabilising the ringgit via capital outflows.”
At the current rate of infection, we expect the lockdown to last through July, which will inevitably take a toll on unemployment.
Sonia Zhu