KUALA LUMPUR: While there is a general consensus that the economy will see a substantial recovery in the second half of the year, there are also concerns that declining consumer confidence would further impact businesses in the short term amid rising Covid-19 cases.
Professor of Economics at Sunway University Business School Dr Yeah Kim Leng noted that all eyes are on the number of new cases, which has remained high despite almost a month of new movement restrictions.
The second movement control order (MCO 2.0), which was supposed to end on Feb 4, had been extended to another 14 days to Feb 18 throughout the country except Sarawak.
“The economic impact of the extended MCO will be severe since the expected financial loss is estimated at RM700mil a day.
“Although it is less than the RM2.4bil economic loss per day in the previous MCO, the impact this round can still be substantial, about 2.5 percentage points of the gross domestic product (GDP) if the MCO is extended to two months.
“But it will not be as bad as the second quarter last year, ” Yeah told Starbiz. Still, an extension of movement curbs would slow down the economic recovery. Yeah opined that GDP growth could come in below the 6.5% target.
Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid (pic below) concurred that prolonged restrictions will have a negative impact to economic activities as human mobility and businesses would be restricted.
“However, this is done on grounds of curbing the health crisis from spreading. Therefore, advice from the health experts must be heeded in order to ensure a high success rate to break the infection cases. So it is a tradeoff and a delicate balancing act, ” he said.
Businesses have highlighted that the MCO 2.0 has severely impacted them as consumer confidence was low and most companies have exhausted their reserves while trying to survive last year.
Although some businesses have pivoted to selling their products and services online to cater to changing consumer habits, Malaysia Digital Chamber of Commerce president Chris Daniel Wong noted that the generally weaker economy has made it difficult for businesses to sustain themselves even with the move to online. “This second MCO finds online shoppers tightening their belts and online per basket size buying has reduced, ” Wong said.
The retail industry, along with tourism, hospitality, aviation and micro-SME sectors, have been hard hit by the pandemic as footfall dropped drastically and travel plans were cancelled.
A survey by the Malaysian Institute of Economic Research (MIER) indicated that consumers are increasingly worried about their income and job security as the Covid-19 pandemic continues, further straining their confidence.
The think tank’s Consumer Sentiments Index had slipped 6.3 points to 85.2 for the fourth quarter of 2020 from the preceding quarter. It was the lowest reading in three quarters. A reading below 100 indicates pessimism.
Yeah said the high infection rate of Covid-19 has dampened consumer spending given the uncertainty ahead. This has affected business confidence and investment plans. “We are seeing a fear factor. So even if businesses are allowed to operate, if the infection rate is high, consumers will be hesitant to spend.”
That confidence needs to be there and this is crucial for recovery, especially for the hard hit sectors.
“In any case, we need to be able to go back to our normal spending ability as a consumer or employee.
“The impact depends on our ability to contain the clusters. As long as there is a declining trend in the infection rate, then the economy can be allowed to resume its recovery trajectory. Otherwise, recovery will be dampened and we will have to depend on the vaccine, ” added Yeah.
While recovery hopes are hanging on the rollout of vaccines later this quarter, Yeah also pointed out that much of it depends on the timing, coverage and efficacy of the vaccines.
A sufficient vaccine coverage would lead to lower risk of infection and would enable a return to normalcy. This will help improve consumer and business sentiment and eventually support a stronger economic recovery in the second half of the year.
Source: https://www.thestar.com.my/business/business-news/2021/02/08/weak-consumer-confidence-poses-challenge