With GDP plummeting, are we facing recession? Putrajaya can weather storm, pundits suggest

Soo Wern Jun And R. Loheswar
Yesterday, Bank Negara Malaysia projected that the country’s GDP is set to fall as between -5 and 2 per cent, as Malaysia faces the Covid-19 pandemic that has forced the economy almost to a halt. — Picture by Yusof Mat Isa

KUALA LUMPUR, April 4 ― Following a dire estimate of Malaysia’s gross domestic product (GDP) this year, several economists have suggested that Putrajaya may be capable of riding out the economic downturn.

Those polled by Malay Mail said the Ministry of Finance (MOF) would have been prepared for the eventuality, although there are concerns over how Malaysians themselves can make it through.

“The government should already prepared for the oncoming recession when they released the new financial stimulus of RM250 billion last week,” academic Aimi Zulhazmi Abdul Rashid told Malay Mail.

“According to MOF, the package was put up without tapping into the nation's institutions' reserves like BNM, EPF (Employees’ Provident Fund), PNB (Permodalan Nasional Berhad) and others.

“In short, this -2 per cent projected GDP has been taken into account by MOF,” he said.

He added that, ample liquidity in the banking system will suffice, as reported by BNM, to prop up the market in the next 12 months.

Yesterday, Bank Negara Malaysia projected that the country’s GDP is set to fall as between -5 and 2 per cent, as Malaysia faces the Covid-19 pandemic that has forced the economy almost to a halt.

Earlier this week, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said in an interview with Bernama that the government is currently focused on fiscal discipline.

According to Zafrul, overall, direct fiscal injection in the stimulus package which was announce by Prime Minister Tan Sri Muhyiddin Yassin on March 27 was merely RM25 billion; while the others were from government agencies and related parties within the government ecosystem, and some borrowings which are local because there is ample liquidity.

University of Malaya's Mohd Nazari Ismail, while agreeing that the Perikatan Nasional government will be able to weather the storm, however argued that any decisions made by the government may cost them politically as they may not be acceptable to voters.

“They have to consider implementing GST (Goods and Services Tax) to convince financial markets in order to avoid higher borrowing costs. But the GST will hurt the people more, especially the B40 (bottom 40 per cent households),” he said when contacted.

Weighing in on this, the Socio-Economic Research Centre (SERC) said the GDP projection made by BNM was not something surprising, as the research centre had predicted a lower projection at just -3 per cent.

Its executive director Lee Heng Guie said this huge range of prediction between -2 and 0.5 was due to a lot of uncertainties out there concerning not just the domestic economy, but also global.

“I think for the first time BNM is giving a very wide range. But we are looking at -3 per cent, a much bigger minus. But all these will still be subjected to a lot of developments evolving,” said Lee when contacted.

Lee explained that because this is a global pandemic, certain things like exports will still be affected, as evident with BNM’s expected export growth rate falling by 13.6 per cent, which he said is a sharp fall.

“Because a lot of countries that are trading partners are still struggling with the virus outbreak, so export demand will slow down too. Export will continue to remain sluggish and have an impact on the economy,” Lee added. 

He cautioned that even if the MCO is lifted, the government will continue to put in place strict social distancing measures.

“So we may not see a full normalisation in terms of spending behaviour and also business activities,” he said.

He added that it also depends on the worldwide progress made based on Covid-19 recovery.

“If you look at China, they are slowly restoring. Although some have fully restored, I don't think Chinese tourists will come out yet [to Malaysia].

“That's why, while we are hopeful that China may be able to help us in the second quarter, China is highly guarded as they don't want a third wave to come [for them]. If we are expecting tourists spending, it will take some time,” he said.

Lee was also concerned by a possible high employment rate ― a number higher than what was projected by BNM.

“This will weigh down consumer spending. The biggest worry that I have is, within this six months' loan moratorium, for those who applied, what if they are retrenched or got a pay cut and yet they are faced with delayed loans?

“These things you need to take in account or anticipate,” he said.

On the other hand, Christopher Choong from Khazanah Research Institute (KRI) said BNM's projection is viable assuming the MCO period does not go beyond April 14.

“Otherwise, we would be looking at even lower numbers here,” the KRI deputy director of research said when contacted.

Given that the stimulus measures thus far have focused on the short term and numbers showing that Covid-19 would take a toll on the economy for the entire year, Choong asked whether there are plans to increase the fiscal package to support medium-term issues of up to at least a year.

“This is especially when stimulus measures are shown to provide support to growth, estimated to add 2.8 percentage points to growth.

“On that note, adjusting the stimulus measures to support SMEs would be a priority, as acknowledged by the government as well,” he added.

Several measures Choong suggested to alleviate the situation include merging the Wage Subsidy Programme and the Employment Retention Programme (ERP) under one allocation; otherwise, the ERP allocation will be oversubscribed soon given its initial small allocation.

Choong also suggested for the removal of the condition that businesses have to prove an income loss of 50 per cent.

“The rationale of the programme should be underpinned by protection of viable firms, instead of loss-making firms.

“The wage ceiling of RM4,000 per worker is a good-enough control mechanism.” he said.

He also proposed for an increase of wage subsidy pay-out amounts from RM600, reduce further the interest rate of the Special Relief Facility to encourage more take-up by SMEs and introduce a 100 per cent property tax rebate for non-residential properties and ensure that this is passed on to tenants. Singapore has taken a similar approach to address rental costs.

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