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PETALING JAYA: The need for another economic stimulus package will depend on the economy’s recovery, and should be targeted at those most affected by the movement control order (MCO), say economists.
Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid (pic below) noted that there were signs of economic recovery at present, backed by a pick-up in total industry volume (TIV) for the automotive industry, total exports growth, as well as a slight decline in the unemployment rate.
“The recent decision to raise the government debt limit from 55% of gross domestic product (GDP) to 60% would certainly help provide the flexibility to raise financing to fund any stimulus package.
“Should economic recovery continue, the need for a full blown fiscal stimulus may not be warranted.
“However, if there is a need to stimulate the economy, it is going to be targeted, for example, in sectors such as aviation and tourism, which are most affected by the MCO, ” he said.
In July, TIV rose to more than 50,000 units, from an all-time low of 141 units in April this year. Meanwhile, total exports grew 3.1% in July, marking the second consecutive month of expansion.
As more sectors reopen following the end of the MCO, Malaysia’s unemployment rate declined from a record-high of 5.3% in May to 4.9% in June.
On Tuesday, Prime Minister Tan Sri Muhyiddin Yassin said the government was prepared to implement additional economic stimulus packages or other initiatives if needed, and if the government’s financial situation allowed it. He was speaking at the closing of the Perikatan Nasional administration’s half-year convention.
MIDF Research economist Abdul Mui’zz Norhalim does not rule out new fiscal stimulus from the government, though any new fiscal package is not expected to be as large as those announced previously.
“This is to ensure prudent debt management. The government needs to be cautious not to have a constrained fiscal position which increases the risk of economic fallout from a sovereign debt crisis, as experienced by several European countries after the global financial crisis.
“The US$2.5bil of immediate cash payment from Goldman Sachs as part of the settlement for the mishandling of bonds issued by 1MDB will further improve the government’s fiscal position and give more room for the government to inject a new fiscal stimulus, if deemed necessary, ” he said.
The combined value of the previous economic stimulus packages amounted to RM295bil, which include Bantuan Prihatin Nasional, the loan moratorium, special assistance for small and medium enterprises, wage subsidies, electricity bill discounts and other initiatives.
Abdul Mui’zz said that measures from the Prihatin and Penjana stimulus packages seem to be effective in cushioning the impact of the Covid-19 outbreak on the economy and has helped boost the disposable income of households.
However, while Malaysia’s economy is on a recovery path, Abdul Mui’zz highlighted that the recovery in economic activities has yet to bring down the high unemployment rate to pre-pandemic levels of around 3% to 3.5%.
“Further extension of fiscal stimulus needs to be targeted for those vulnerable and the low-income group to face the ongoing pandemic-induced economic crisis. The government could consider initiatives that could boost household income and consumption activities, as well as measures to encourage increased recruitment and hiring, ” he said.
The expiry of the six-month loan moratorium and wage subsidy programme starting October will reveal the actual impact of the MCO on Malaysia’s economy.
This could result in a potential decline in consumption activity as a result of lower disposable income. “As such, it is imperative that any extension of the government’s initiatives will have to be targeted. For instance, the loan repayment moratorium will be extended for an additional three months for those who have lost their jobs due to the MCO, ” said Abdul Mui’zz.
UOB Malaysia senior economist Julia Goh concurred, adding that an area that could see further support is the labour market through the allocation of additional resources.
Source: https://www.thestar.com.my/business/business-news/2020/09/04/room-for-more-stimulus