By Ranjit Singh
THE Covid-19 pandemic has affected the whole world and it is not only a health crisis but an economic disaster as well. It has brought about a huge economic loss to the world as businesses and trade come to a halt due to lockdowns imposed by governments to fight the virus.
Malaysia as a trading nation has not been spared from a sharp downturn in the economy. Bank Negara Malaysia had forecast that the economy would grow by -2% to 0.5% in 2020. The growth was 4.3% in 2019. The sharp decline in global crude oil prices did not help as 20% of the country’s revenue is oil-dependent
MIDF economist Mazlina Abdul Rahman told FocusM that the economy would be worse off in 2020 than it was during the Global Financial Crisis (GFC) of 2008-2009.
“In 2020, the global economy is projected to contract far worse than during the GFC as indicated by the International Monetary Fund (IMF), which foresees a sharp contraction of 3% this year compared to less than a 1% fall seen in 2009.
“The shock from this health crisis is large with almost all countries around the world being affected where the number of infected individuals has surged more than 10 times in a matter of a few days,” said Mazlina.
She attributed the sharp contraction in economic activities to the restriction of movement and lockdowns introduced by governments to combat the pandemic.
The Malaysian government had imposed a Movement Control Order (MCO) from March 18 and it has since been extended in phases to May 12. The government has said the economy lost RM2.4 bil a day during the MCO period.
“Lockdowns and restriction of movements around the world in order to control the rapid spread of the virus are reducing economic activities across all industries. Some non-essential businesses were not operating at all,” added Mazlina.
She said among the sectors, negative impact on aviation and tourism-related are likely to persist for a longer time than other sectors as fears of safety have dampened travel sentiment. Since it is a pandemic, global trade flows will also be lowered due to both supply and demand concerns..
“Malaysia will not be spared as well. Expectations of a larger contraction in 2020 compared to 2009 is becoming more evident, especially with the extension of the MCO as large numbers of businesses continued to shut down their operations.
“Lower global trade will affect the manufacturing sector the most as almost 80% of our exports are manufactured goods. Consumers continue to stay home hence cutting down expenditure,” Mazlina added.
However, she does offer some consolation.“Looking at our progress in containing the outbreak with the death rate far lower than the world average, a recovery rate of over 50%, and also that the number of new cases has peaked, it would suggest that the economy will recover by 4Q20. Stimulus packages announced would provide some support to cushion the adverse impact resulting from Covid-19,” she added.
Prime Minister Tan Sri Muhyiddin Yassin had announced an RM250 bil economic stimulus package to mitigate the economic impact of Covid-19.
Sunway University professor Dr Yeah Kim Leng told FocusM that due to the evolving nature of the crisis, it would be difficult to ascertain the full impact on the economy.
“Due to the evolving crisis and a testimony to the uncertainty in containing the pandemic, it is important to note that forecasts are outdated quickly. The latest prognosis by world organisations such as the IMF suggests that the global recession caused by the pandemic will be the worst since the 1930s Depression.
“For Malaysia, the downturn is shaping up to be worse than the 2008-09 GFC where the economy declined but hopefully not as severe as the 1998 recession during the Asian Financial Crisis where the economy contracted by 7.5%,” said Yeah. — April 28, 2020
