In light of the COVID-19 pandemic, we have seen an unprecedented shutdown of economies and borders across the globe, causing a standstill in growth and nationalism at its best.
Fitch had revised the forecast for global growth to 1.3 per cent from 2.5 per cent in December 2019. Meanwhile, the World Bank is anticipating the Malaysian economy to be contracting 0.1 per cent, assuming COVID-19 to be under control and growth to accelerate in the fourth quarter.
In light of this, Malaysia has introduced stimulus packages to provide a buffer to its citizens.
Coined the PRIHATIN package, an additional MYR230 billion (US$52 billion) on top of the MYR20 billion (US$4.6 billion ) package that was previously announced, Malaysia unveils another package that is equivalent to 15.6 per cent of its GDP. How does this compare to our global peers?
The consistent theme across Malaysia, Singapore, Australia and the US’ economic relief bill include one-time payments to individuals, strengthened unemployment insurance, additional health care funding and loans, and grants to businesses to deter layoffs.
However, even as the US touted a US$2 trillion package, we have seen 500,000 furloughs in the US in the past month just in the retail space.
At the onset, Malaysia’s stimulus is among the highest around the world. Malaysia’s RM250 billion package is focused on two main groups: the bottom 40 per cent and the SMEs.
Households are getting one-off payments ranging from MYR500 (US$115) to MYR1,600 (US$368), special allowances, electricity discounts, and free internet. SMEs meanwhile has increased the size of the Special Relief Facility to MYR5 billion (US$1.1 billion) and loan moratorium.
However, it is essential to note that only RM25 billion (US$5.8 billion) are in the form of direct fiscal injection, 10 per cent of the package.
While headline numbers this time are significantly larger both in terms of quantum and percentage to GDP from the previous GFC stimulus package, our view is that this stimulus’ impact will mostly be muted.
Malaysia and Southeast Asia were largely insulated from the GFC in 2008 as the problems were domiciled mainly in developed countries where the US subprime crisis occurred.
The looming recession in Malaysia is unavoidable given that businesses, indiscriminate of sectors are forced to shut down due to MCO (Movement Control Order).
Also Read: {Updated} Indonesian founder develops CE-approved rapid self-test kit priced at US$10 for COVID-19
Sectors such as retail, tourism, and aviation have seen revenues down 70-90 per cent quarter on the quarter where other essential services such as F&B, manufacturing, and e-commerce have barely broken even as consumers tighten their belts.
Another poison pill is the confluence of reduced oil consumption and a price war between Russia and Saudi Arabia, resulting in oil prices decline 61 per cent this year.
Oil is currently hovering at an 18 year low of US$20. While consumers may benefit from lower prices, Malaysia as an oil-producing country that is highly leveraged to the commodity will see its reserves dry up and at the same time see significant losses in the oil and gas sector which accounts for 20 per cent of the Malaysian economy.
There’s no doubt that the ability of government and central banks’ massive cash injection might make things a little better in the short run. Still, the growth outlook for Malaysia and the rest of the world continues to look bleak as economies contract at record speed.
Keynesian economics will dictate that the lack of aggregate demand caused by panic and fear induced by inconsistent government measures and social isolation will cause a decline in consumption. This may result in businesses closing and unemployment to spike to double digits percentages as companies begin employees lay off.
Governments of the world need to use fiscal policy, effectively increasing deficits to pay for payroll and put a moratorium on rental and interest payments, putting the world into hibernation.
Unfortunately, unprecedented uncertainty and the absence of historical guidance on how we handle a pandemic dictates the risk of failure of any potential fiscal and monetary measures. When we wake up after a coma, will we see a world that has a standstill or a world that has slipped away from us?
–
Register for our next webinar: Best practices for communications during the COVID-19 crisis
Editor’s note: e27 aims to foster thought leadership by publishing contributions from the community. Become a thought leader in the community and share your opinions or ideas and earn a byline by submitting a post.
Join our e27 Telegram group, or like the e27 Facebook page.
Image credit: Alex Block on Unsplash
The post As the world goes into hibernation: Why a COVID-19 driven recession looms over Malaysia appeared first on e27.