Economists speak of hurdles to reviving economy

 

Many businesses have shut down in the midst of the strict lockdown regulations.

PETALING JAYA: As Malaysia grapples with the lockdown with the government forced to implement strict measures to keep people safe amid job losses and business closures, economists say the country faces a crossroads, with Putrajaya’s next moves dictating how the country is able to recover from the damage inflicted by the pandemic.

As the nation enters the second half of the year, FMT spoke to four leading economists on the biggest problems it faces going forward, as part of a four-part series on the economy’s present and future.

Richard Record (Lead Economist, World Bank Malaysia)

While Malaysia’s exports are rebounding well, Record said that owes more to the strong recovery of other countries rather than Malaysia’s own performance, as illustrated by weak domestic investment, consumption and poor performance in the services sector.

“The recent spike in infections is raising concerns about the overall capacity of Malaysia’s health system and the effects of the ongoing cycle of opening and closing the economy on households and firms,” he said.

He said the World Bank’s 4.5% growth projection, which the group downgraded from its 6% projection in March, is subject to a number of downside risks, such as ineffective containment of the virus, more movement restrictions and delays in vaccinations, which would limit how quickly the economy can reopen.

The brewing political turmoil, he added, will hinder the government’s ability to manage the pandemic effectively and erode investor confidence, both of which will drag the economy down.

Carmelo Ferlito (CEO, Center for Market Education)

Carmelo says Malaysia lacks a true economic “exit strategy” that outlines how the country will function in the medium and long term.

“It’s not just that the economy has been put on ice for months, but so too the lives of Malaysians, driven by non-scientific SOPs,” he said.

He said keeping the large swathes of the economy shut will only plunge more businesses and workers to despair.

A more appropriate strategy is needed that would allow for the economy to function while protecting society’s most vulnerable and efficiently detecting and isolating cases.

“Without a clear horizon ahead, people will start to break down not only financially but also psychologically, undermining the possibilities for a true recovery,” he said.

Geoffrey Williams (Malaysian University of Science and Technology)
& Paolo Casadio (HELP University)

Both economists said the government’s insistence on using the same virus control measures, despite them not showing meaningful results, have been the country’s biggest impediment.

“My biggest concern now is that we are repeating the same mistakes,” said Williams, arguing that while containment measures have shown no signs of being effective, policy makers have stuck by them.

“We are not open to alternative perspectives or uncomfortable forecasts. and different policy options are not entertained. This closed mindset is hugely damaging.”

If new strategies are not explored, he said, the country will continue to be hit with job losses and business closures for the foreseeable future.

Casadio agreed, saying a “more rational and less emotional” view of the pandemic is needed, which considers economic preservation as well as public health.

The present policies, he said, take into account only issues such as lockdown, social distancing and vaccination, and exclude key alternatives. - FMT