By Ranjit Singh
THE unprecedented economic loss brought about by the Covid-19 pandemic has led to many questions being asked on the type of economic recovery which will take place post the outbreak.
Some economists opined that although the Covid-19 recession might only be one or two months old, a few signs of a V-shaped recovery are starting to emerge.
These signs were visible in the biggest economy in the world, the US. Firstly, in markets, assets that central banks were buying directly and in size, such as the Federal Reserve’s unlimited purchase of US Treasuries, mortgage-backed securities, and municipal bonds have already retraced about half their crisis losses. US high-grade corporate debt and equities have recovered one-third of this year’s sell-off.
The International Monetary Fund (IMF) had projected that Malaysia would register GDP growth of 9% in 2021 and this denotes a sharp V-shaped recovery. Bank Negara Malaysia has forecast that GDP would come in at between -2% and 0.5% for 2020.
However, Dr Yeah Kim Leng, professor at Sunway University told FocusM that the type of recovery would very much depend on the containment of the pandemic. He also said the recovery projected by the IMF was similar to the one experienced by the country after the Global Financial Crisis of 2009.
“IMF’s 9% GDP growth projected for Malaysia in 2021 is akin to the 7.4% bounce in 2010 following a 1.5% contraction in 2009 triggered by the global financial crisis. This V-shaped recovery is contingent upon successful containment of the Covid-19 pandemic within this year.
“It assumes either there is no resurgence of infection, the so-called second or third wave or a vaccine or cure is found. Otherwise, the economy may need to be shut down temporarily which will result either in a U-shaped recovery or the worst scenario of an L-shaped trajectory of no or flat growth beyond 2021,” said Yeah.
Meanwhile,Bank Islam Bhd chief economist Afzanizam Abdul Rashid told FocusM that signs were evident that the number of people infected with Covid-19 globally was declining and this demonstrated successful containment policy. He foresees the Malaysian economy experiencing a “V” shape recovery.
“Thus far, the number of new infections globally has been declining. The latest statistics from WHO showed that new cases have fallen from 90,778 as of April 11 to 69,728 on April 15. Additionally, the Malaysian government has gradually reopened the economy as the new infection cases trajectory has been lower. Should this trend continue, a V-shape recovery is quite likely. And the positive sentiments in the equities market indicate that the economy could be on a better footing in 2H2020,” he said.
Afzanizam also opines that the projection by IMF for the country in 2020 was”‘palatable”.
“In that sense, the 9% GDP growth projection by the IMF for next year looks palatable. The international community too has given its recognition to our MOH in respect to our handling of the Covid-19 pandemic. While the uncertainty still looms large with the incoming data has been so grim in particular from the advanced countries, we cannot totally rule out the possibility that things might turn around.
“However, strict adherence to the MCO and social distancing is the prerequisite for the economic recovery to be more durable. A relapse of Covid-19 would be equally disastrous for the economy as it will affect the confidence of all stakeholders. For now, a V-shape recovery is the base-case scenario, added Afzanizam.
Outside of markets, in recent activity data, the purchasing managers index (PMI) for China — the country at the leading edge of the pandemic – showed manufacturing and services output expanded in March, as outsized as its collapse in February.
Of more than 50 economists polled by Reuters recently, some forecast the world economy will shrink by as much as 6% in 2020. The other extreme was a prediction for 0.7% growth. The average was a 1.2% contraction. — April 17, 2020
