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PETALING JAYA: Malaysia will head into a full lockdown starting tomorrow for at least two weeks, with its effects seen as acute on employment and business activity in the weeks ahead.
The government has said that a fresh stimulus package for households and industries is forthcoming but experts debate on whether it would have a significant effect of mitigating the impact of a full lockdown on the economy.
During the first movement control order (MCO) that began in March 2020, the Malaysian economy lost about RM2.4bil on average a day.
About 2.8 million high-risk informal workers lost their jobs while the economy plunged by 17.2% year-on-year (y-o-y) in the second quarter (Q2) of 2020. The first MCO lasted for 47 days or nearly 7 weeks.
The loss on the economy was high because of the sudden abrupt stop on business activity. This time around, the government has rolled out economic stimulus packages with some RM17bil that is currently left to be spent on top of further stimulus that will be announced shortly.
There is also the ongoing vaccination programme, which is to be ramped up to average 150,000 vaccinations a day as the supply of vaccines have arrived in larger numbers. This could mean the duration of the current lockdown could be shorter than the first one a year ago.
The immediate assessment of the impact from the lockdown though is nonetheless seen as steep and could range around RM2.4bil a day, according to economists.
This is considering that the economic recovery remains fragile and many businesses may no longer have an adequate buffer to ride through the storm.
Alliance Bank chief economist Manokaran Mottain warned that more businesses, especially the small and medium enterprises (SMEs), could close down for good this year as compared with the aftermath of the first MCO.
From March to September 2020, over 32,000 SMEs have shuttered, based on the Entrepreneurship Development and Cooperatives Ministry’s written reply to the Parliament.
Most of these companies were micro SMEs that have annual sales of less than RM300,000 or less than five full-time employees.
Last week, the SME Association of Malaysia also warned that a full lockdown would cause nearly 40% of the SMEs to close down their business operations.
Manokaran pointed out that during the first few weeks of last year’s MCO 1.0, the entire economy, save for very few businesses, was ordered to close.
“The restrictions were then eased by allowing factories to operate at reduced capacity.
“However, the upcoming MCO is expected to start with more exemptions compared to MCO 1.0. Nevertheless, the cost of the MCO on the economy would still be large, almost close to what we saw last year, ” Manokaran told StarBiz.
He also said that the country’s gross domestic product may not be able to grow by double digit in Q2 of 2021, as predicted by the market previously.
“Our initial forecast was for the economy to grow by 12% y-o-y in Q2. But, after factoring in the lockdown, the economy may only grow by single digit at best.
“Hence, it will not be possible for the economy to hit even the lowest end of Bank Negara’s 6% to 7.5% forecast for the full year. I think the growth will be below 5%, ” Manokaran added.
As a result of the lower growth possibility, Manokaran said this could trigger another overnight policy rate (OPR) cut by Bank Negara.
“The next meeting to decide on the OPR is only in July. But considering the immediate need to prop up the economy, I think there could be an interim decision, perhaps next month, by the central bank to lower the rate to a new record-low level, ” he said.
Despite the obvious effects of the lockdown, Manokaran said it was necessary to deal with the worsening Covid-19 cases.
“We need strict measures and can no longer accommodate populist measures just to win votes, ” he said.
On the contrary, Center for Market Education CEO Carmelo Ferlito (pic above) said the new lockdown could have a worse economic bite than its predecessor.
He said the economic loss from the upcoming MCO could be worse than the RM2.4bil-a-day cost registered last year.
“When MCO 1.0 was implemented, the expectation was that the pandemic was a short-term phenomenon, so many endured and tried to resist with a better future in mind.
“In this case, after 15 months, the mood has surely changed. Those who tried to endure are disappointed with a lack of strategy, political uncertainty and hiccup decisions.
“These firms may now decide that it is not worth trying to endure anymore and to avoid further losses by closing down.
“Plus, you have multinational corporations that will try to relocate – and I can tell you that many expats are packing for good, ” he said.
Carmelo said the lockdown would deliver a domino effect on the economy, affecting most sectors especially food and beverage as well as SMEs that rely on daily physical operations.
When asked whether the government should reintroduce the blanket loan moratorium in light of the lockdown, Carmelo said: “Maybe, but at what cost and with which exit strategy in mind?”
“We are already experiencing a dichotomy between the real economy – depressed – and the abundance of financial means available in the market because of the fiscal and monetary policies introduced to contain the wounds created by past lockdowns, ” he said.
Industry groups have largely been against the idea of a full lockdown and had previously urged the government to tighten the standard operating procedures instead.
The Federation of Malaysian Manufacturers said a total lockdown is going to have a devastating acute impact on business survival and employment.
It noted that many companies, especially SMEs, are barely on their road to recovery from the impact of the pandemic.
“If businesses are unassisted by the government, this lockdown could lead to their closure and significant job losses where the numbers could hit one million or more, ” FMM said in a statement on Saturday.
The Malaysian Employers Federation (MEF) president Datuk Syed Hussain Syed Husman also agreed that more stimulus packages must be introduced.
“Automatic loan moratorium must also be reintroduced so that such businesses and individuals could survive and be able to continue with their operations, ” he said.
Syed Hussain added that the government’s decision to impose a full lockdown, except for certain essential services, was a bitter pill for employers to swallow.
Nevertheless, he conceded that it was necessary to flatten the rising trend of Covid-19 daily infections.
The Perikatan Nasional government on May 22 announced that it will not implement a full lockdown, pointing out that MCO 1.0 had almost led to a total economic collapse.
However, less than a week later, the government made a U-turn and reversed its decision following skyrocketing Covid-19 cases and intensifying public backlash.
The new lockdown will be carried out in three phases. Phase One is from June 1 to 14, where only essential economic and service sectors will be allowed to operate.
Should this first phase of lockdown succeed in reducing the number of daily cases, Phase Two will be carried for four weeks by allowing some economic sectors to open, provided no large gatherings are involved and physical distancing is practised.
“After that, Phase Three would start with the implementation of the movement control order (MCO) where no social activities are allowed, ” according to the Prime Minister’s Office.
Source: https://www.thestar.com.my/business/business-news/2021/05/31/a-necessary-but-painful-move