SLOW growth, in the wake of the Covid-19 pandemic, is a global phenomenon; what matters is how fast we can come out of it.
The higher percentage of those vaccinated helps to bolster confidence but many lagging signs point to a possibly slow healing process.
Above all, it requires great determination and a common will from the government to the population to beat this Covid-19.
We need to keep the spirit alive, believing that together, we will conquer this, and not blame others or give excuses of “pandemic fatigue”.
“The new prime minister reaching out to the Opposition to help battle Covid-19 together is a positive move; foreign investors seem to like it with equities and bonds seeing foreign interest and the ringgit strengthening in foreign exchange markets,’’ said Hong Leong Bank managing director, global markets, Hor Kwok Wai.
It is time for the government to start planning and to move from a pandemic approach to an endemic view.
‘’We need to expedite the full reopening of factories and get the economy back to normalcy,’’ said MMC Corp Bhd group managing director Datuk Seri Che Khalib Mohamad Noh.
Further restrictions and lockdowns were re-triggered following the recent spikes in Covid-19 infections worldwide due to the Delta variant.
Growth forecasts for Malaysia were sharply lowered to 3%-4% by Bank Negara against an earlier forecast of 6.0%-7.5%, and cut to 0% by Fitch Solutions from 4.9%.
“Despite our progress on the vaccination rollout, an appropriate response by the Malaysian government is necessary to address these lowered growth expectations and to revive the economy,’’ said Fortress Capital CEO Thomas Yong.(pic below)
Fortress Capital asset Thomas yong
Economic recovery in the second half is still disrupted; while relief measures are already in place, a full and safer reopening of the economy, subject to standard operating procedures, requires reaching herd immunity as soon as possible.
“Immediate attention would centre towards combating the daily Covid-19 infections and pushing for herd immunity; once that is achieved, we should see more easing of the economy which should boost overall confidence,’’ said Rakuten Trade head of research Kenny Yee.
Adding to the urgency of the situation, the US Federal Reserve (Fed), which has been buying bonds to help stimulate the economy, is likely to slow down these purchases this year.
“The Fed’s tapering of asset purchases will likely be gradual, followed by interest rate normalisation probably next year,’’ said Socio-Economic Research Centre executive director Lee Heng Guie.
Lee Heng Guie SERC
The Fed’s move will probably cause some tightening of liquidity conditions, financial market volatility and weakening of currencies in emerging currencies.
We can be impacted especially if our economy continues to be weak although in reality, US growth will still be more important than inflation.
We may not be too worried about the Fed’s tapering, as its bond buying is likely to be less aggressive rather than halted. But steep price increases that is bashing down consumer sentiment need to be addressed.
On the local front, it is worrying that the damage wrought by Covid-19 and disruptions in supply chains may be stiff constraints in the attempt to revive the economy.
The recent relaxation under the new phase one measures may have minimal effect in reviving the economy, as new channels for consumer goods distribution that incur less friction costs (of direct and indirect costs involved) have yet to be fully developed.
With the ban on cross-district travel, goods such as food cannot reach the markets as they are grown in areas that are far from where consumers are located.
So prices remain very high and consumers who are also feeling the pinch cannot help but cut their spending.
Very high Covid-19 case counts also deter consumers from going out and hence, consumption will likely continue to suffer.
The recent weakening of the ringgit, partly due to political uncertainties, had impacted negatively on prices and consumption.
Savings deposits at banks are up more than 4.5% possibly because consumers are forced to be careful in their spending in view of future uncertainties.
Prices usually drop during recessions, but this recession has seen prices climb.
Giving out money to the poorer segment may not help as they keep having to battle with high prices of goods.
The normal price adjustment process is not working as we see the simple inability of prices to move down in response to a huge drop in demand.
Property prices also have not really dropped in response, unlike in the mid-1980s.
“So low interest rates have few stimulating effects; it is the classic liquidity trap where interest rates are very low and savings are high,’’ said former Inter-Pacific Securities head of research Pong Teng Siew.
Pong Teng Siew
Exports, considered the shock absorber for the drop in domestic demand, suffer from high raw material prices, disrupted shipping and high container costs.
“Many are hoping for things to improve in the final quarter of 2021 but consumption, which is the biggest contributor to the economy, has been dealt a mortal blow,’’ said Pong.
Even if those who work from home are producing the same amount of work as those who travel to office to work, these people who work from home tend to spend less.
The office lighting gets shut off; use of air conditioning drops; people working from home no longer shop in the building they used to work in.
They generally do not need to buy new clothes or use banking services as much as before.
In the current environment, retail sales cannot be measured by footfalls in malls but must take into account window shoppers.
“It will take time to heal, this is no normal downturn; the current set of problems require determination and a common will to defeat Covid-19.
“Only China has been able to do it, due to the strong sense of purpose in China,’’ said Pong.
Can we do it? Or are we still going about trying to piece together measures for health, economic recovery and political stability?
Yap Leng Kuen is a former StarBiz editor. The views expressed here are the writer’s own.