KUALA LUMPUR, Aug 22 — The Covid-19 pandemic has proven to devastate the economy globally, including developing countries which saw second-quarter growth figures plummet to unprecedented levels since the 1998 Asian Financial Crisis.
Malaysia was no exception with its gross domestic product (GDP) in the second quarter of 2020 (2Q2020) contracting 17.1 per cent, surpassing the -11.2 per cent recorded in the fourth quarter of 1998.
In fact, at regional level, Thailand experienced its worst decline in 22 years with its GDP for the same period contracting 12.2 per cent in 2Q2020 compared to the previous year, Singapore’s economic growth declined 13.2 per cent year-on-year and Indonesia contracted 5.32 per cent.
The negative impact also spread to the economies of developed countries such as the United States which recorded its worst spell in 2Q2020 with a GDP plunging to a record level of 32.9 per cent, while the eurozone contracted 12.1 per cent in the same period.
What is certain is that the Malaysian economy needs direction and the right policies to navigate through securely with the focus on lower income groups that had been severely affected by the economic consequences of Covid-19.
The unemployment rate in June 2020 dropped month-on-month to 4.9 per cent from a high of 5.3 per cent in May 2020 following the reopening of most sectors including the service industry after the implementation of the Recovery Movement Control Order to revive the economy as well as curb the pandemic.
Although Malaysia’s economy is showing early signs of a V-shaped recovery, this does not mean that it can breathe a sigh of relief as on the other hand, it needs to be constantly ready, including reviewing policies and approaches to stay on track.
This may be the reason why the government was open to the idea of ‘targeted approach’.
As emphasised by Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz recently, there is still room for targeted initiatives following the plan to increase Malaysia’s statutory debt limit to 60 per cent of the GDP from the current 55 per cent.
According to him, the increase is part of the government’s RM45 billion direct injection into the Prihatin Rakyat Economic Stimulus Package (PRIHATIN) and National Economic Recovery Plan (PENJANA).
Bank Negara Malaysia (BNM) has revised its 2020 GDP growth forecast as follows: -5.5 to -3.5 from -2.0 to 0.5 per cent previously, and anticipates the economy to recover from the adverse impact of Covid-19 to post a growth of 5.5 per cent to 8.0 per cent in 2021.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said economic activity would pick up steam in the third quarter of 2020 and carry on in the final three months of the year as the economy continues to be operational albeit gradually.
He is also optimistic that the government’s fiscal policy and the accommodative monetary environment provided by BNM would help steer the economy in the remaining period of the year and into 2021.
“The progress on vaccine also seems promising following tests conducted by pharmaceutical and biotech companies, including advanced trials.
“In that sense, we cannot rule out the possible discovery of a vaccine even though it is yet too early to tell,” he told Bernama.
As the country seems to have digested the impact of Covid-19 in the second quarter and a glimpse of what is in store for the second half of 2020 and next year, all eyes are now set on the 2021 Budget and the tabling of the 12th Malaysia Plan.
The 2021 Budget would be a crucial one due to the fact the impact of the health crisis remains and how it has changed the way people work, play and do business.
“The discussions so far have been on ways to change business models to face challenges posed by Covid-19. Among the two areas, crucial for the country to move forward are human capital and technology,” Tengku Zafrul told Bernama recently.
The 2021 Budget, to be tabled in Parliament on Nov 6, is aimed at revitalising the economy as well as restoring investors and consumers’ confidence.
BNM Governor Datuk Nor Shamsiah Mohd Yunus said Malaysia can bank on the greater demand created by the pandemic, namely the increase in healthcare spending and greater utilisation of semiconductor and medical devices, sectors in which the country is already a key player.
Malaysia is the sixth-largest global semiconductor exporter, home to leading global technology firms, the largest market for medical devices in Asean, and ranked third in Asia for outbreak readiness.
“Put in the right policies to take advantage of the new normal and the new growth areas. We can do it because we already have the base. We are poised to benefit from this strength,” Nor Shamsiah said recently.
The Institute for Democracy and Economic Affairs (IDEAS) recently said it was time for the government to identify and prioritise subsectors or key value chain activities where Malaysian industries, as well as small and medium enterprises (SMEs) can be competitive, not just domestically but more so regionally and globally.
At the same time, the pandemic has highlighted the urgency of addressing existing gaps in social protection, targeting especially SMEs, which remain the biggest employer in Malaysia.
Speaking to Bernama, IDEAS research manager Lau Zheng Zhou said the government among others is expected to include some policy measures in the upcoming Budget to pre-empt the economic implications of a possible third wave of Covid-19.
These could include extending existing protection-based programmes, targeting certain worst-hit sectors, and also addressing SMEs’ capabilities to adapt, he added.
“Some of these measures may not entail direct fiscal injection but there will still be an impact on fiscal deficit and debt limit. However, the priority to protect and promote growth could still be a priority,” he had said.
Lau pointed out that the options to recovery today are more limited when compared with the Asian Financial Crisis due to the fact that trade and foreign direct investment (FDI) are plunging with the ongoing health crisis in the more advanced economies.
“The government should consider alternatives such as identifying subsectors where we have a competitive edge regionally in order to benefit from the relocation of supply chains from China to Asean that is taking place.
“By attracting highly developmental FDIs, Malaysia can speed up its process of automation and digitalisation, especially targeting domestic SMEs,” he added.
It is definitely a testing time for the government.
So far, it seems to have got the policies and tools right, to remain on the growth path.
Having said that, future policies and directions have to be equally good as well as flexible enough to be fine-tuned and upgraded in the shortest time possible, as and when new challenges or opportunities arise. — Bernama
