Shopping campaign has limited benefit, says economist

An economist says people may spend on non-essentials instead of saving up to repay their loans.

PETALING JAYA: A government push to increase domestic consumption is difficult to achieve and is unsustainable, according to an economist, who says a better strategy is for producers to adjust to market demands, though this may be painful for some.

Prime Minister Muhyiddin Yassin has urged Malaysians to “spend for Malaysia” to help the economy recover from the impact of Covid-19 through a Mega Sale programme and Buy Malaysian Products campaign.

However, economist Barjoyai Bardai of Universiti Tun Abdul Razak said an increase in domestic consumption might have a multiplier effect but it is one-off as demand will subside.

In the longer term, Barjoyai said, the increase in domestic consumption should boost consumer confidence and hopefully, improve the overall market sentiments to pre-Covid-19 levels.

“The issue, however, is that for people to spend they must have the capacity to do so and while an extension of the loan moratorium can help achieve it, there are downfalls to this.

“The loan moratorium is aimed at helping people cope with possible reductions in incomes and revenues and save up for when the moratorium ends,” he said.

He said many had experienced salary cuts or lost their jobs, resulting in reduced disposable income and purchasing power.

Barjoyai Bardai

Barjoyai said he was concerned that people may not be saving their money for the repayment of their loans when the moratorium ends and instead spend it on non-essentials.

A number of groups and political leaders have called for Bank Negara Malaysia to extend the six-month loan moratorium.

“Pushing for an increase in domestic consumption when there is no increase in incomes is not a sound strategy,” Barjoyai said. Instead of promoting domestic consumption, the government should allow producers to adjust to market demands which was more sustainable.

“We should push producers to sell their products to the world, get them to analyse consumption patterns and demands and adjust to what the market wants.

“If we were to simply boost spending capacity, through an extended moratorium or government handouts, we may see people going for holidays or making purchases they cannot actually afford.”

When spending returns to normal, businesses would be back to square one.

Kingsley Strategic Institute for Asia Pacific economic adviser Hoo Ke Ping said to push domestic consumption, the people must have money in their pockets and this was simply not the case now.

“Now jobs are threatened, we know that 826,000 are unemployed, these are the people the government needs to support first.

Hoo Kee Ping

“We have to increase social welfare so that these people have at least 50% of their existing wages. This can be done through government loans. Right now, we shouldn’t worry about deficit levels, these are extraordinary times.”

Hoo said the government should also look to quantitative easing to increase the supply of money in the economy and to boost spending.

“How the government disperses money now is not as important as actually doing it. The most important thing is to expand programmes to secure employment and livelihoods,” he said. - FMT