PETALING JAYA: With much unfinished business to deal with, the incoming government needs to work fast to realign policy direction and introduce crucial reforms.

       Amid multiple economic growth downgrades by Bank Negara and other organisations, experts said Malaysia should set its priorities and prop up its still-fragile economy.

       Anthony Dass, a member of the Economic Action Council secretariat, said the new government must first decide on the “lives or livelihood” dilemma.

       “If the new government wants to close the economy for a certain period to bring down the number of cases, there must be a game plan on how to strengthen the livelihood of the people.

       “But, if it wants to reopen the economy, the government must decide on how to solve the health crisis,” he told StarBiz.According to Dass, who is also the chief economist of AmBank Group, it is important to drive job creation at a fast pace.

       This is necessary to stimulate consumer sentiment and spur economic recovery.

       The Covid-19 pandemic has not only disrupted the economic engines, but also downgraded the livelihood of many Malaysians.Dass pointed out that about 40% of the bottom 40% (B40) income earners have fallen into poverty because of the pandemic.

       “Among the middle 40% (M40) group, about 30% fell into the B40 class.

       “Downgrades were also seen in the top 20% income earners, where about 20% of them slipped into the M40 group. Quality and adequate job creation would play a role in addressing this problem,” he said.

       At the moment, the labour market conditions remain soft, despite the government’s efforts to support the business sector.

       On Aug 13, Bank Negara said for every 100 jobs lost, only 35 new job placements were made in June 2021. This was down from the 55 new job placements made in October last year.However, the market has seen some sharp improvements compared with June 2020, where only six new job placements were made for every 100 jobs lost.

       Recently, economist Dr Jomo Kwame Sundaram also urged the incoming government to focus on overcoming the pandemic and economic problems to save more jobs.

       “Whoever occupies Putrajaya, they must overcome this problem...China, South Korea, Vietnam and Laos, some of these countries are poorer than Malaysia but they managed to handle the situation better.

       “The danger has not passed and these countries have remained vigilant as we should too,” Bernama reported on Aug 16 following the resignation of Tan Sri Muhyiddin Yassin as the Prime Minister.

       Malaysia University of Science and Technology professor Dr Geoffrey Williams warned that Malaysia is at a critical point with a risk of tipping into a deep contraction.

       Hence, the immediate priority of the new government for the short-term should be to end the movement restrictions.

       Apart from the wage subsidies and rehiring grants, Williams suggested the incoming government provide additional cash support for households and firms.

       “For households, we think direct cash handouts of RM1,500 are needed for the B40 and M40 group for the rest of the year. This would cost about RM35bil, if it starts in September.

       Geoffrey Williams University Science

       “For firms, we feel that following the example of Sarawak, a recovery grant of RM10,000 for small and medium enterprises would be helpful and would cost less than RM10bil.

       “Let them decide how to spend it in the best interest of their company,” he told StarBiz.

       For a longer term approach, Williams said there should be a focus on rebuilding and reforming the economy using social market principles.

       “We need reform and responsible privatisation of government-linked companies (GLCs) to reduce crowding out and we need to promote competition locally and internationally to encourage growth and foreign direct investments,” he added.

       AmBank Group’s Dass also concurred on the need for the new government to introduce reforms.

       This is necessary to convince investors on the prospects of the country.

       “We need reforms on the economic, social and governance fronts,” he said.

       Looking ahead, Malaysia’s economy may grow at a slower-than-expected pace in the second half of 2021, according to Dass.

       “For full-year 2021, our base growth estimate is 3% to 3.5%, assuming 80% of the adult population is fully vaccinated by October. The downside is 1% to 1.5% growth, assuming 60% of the adult population is fully vaccinated,” he said.

       Meanwhile, Williams expected the economy to fall back into contraction in the third and fourth quarter of the year.

       “Looking at the data, we have revised downwards our forecast for the full-year of 2021 to between 1% to 2%, or more likely around 1.8%.

       “Annual or total gross domestic product will only be higher in 2021 because of the big contraction in the second quarter of last year.

       “Unemployment will be around 5%, but underemployment will stubbornly be around 2.4 million to 2.6 million or 15% to 16% of the workforce,” he predicted.

       For now, the ongoing uncertainties in both economic and political landscapes of the country continue to weigh on the market sentiment.

       Affin Hwang Asset Management said banks, GLCs and politically-linked stocks are at risk now due to potential for more national duty, given the limitation of Malaysia’s fiscal and monetary policies to stimulate the economy.“This is a risk and not an eventuality, as a new coalition might not go down this route or it might not be necessary if the economy opens with pent-up private sector consumption.

       “If politics can stabilise combined with economic reopening, there is potential for a 5% to 10% bounce towards the year end,” it said in a note yesterday.

       Affin Hwang Asset Management added that the technology, retail, healthcare, and manufacturing sectors offer the least political risk, although not from a valuation perspective.

       Meanwhile, CGS-CIMB Research said the market would likely weaken due to uncertainties over the future leadership and policy direction of the country.

       It noted that in the previous political crisis, the FBM KLCI fell 3% or 48 points (Feb 21-28, 2020) when the country was run by an interim prime minister.

       “The FBM KLCI could potentially trade as low as three standard deviations below its forward average price-to-earnings ratio on political concerns.

       “This would place the FBM KLCI at 1,415 points, where the market may bottom,” stated CGS-CIMB Research.