Low growth could leave labour force in tatters, warns economist

 

Economist Paolo Casadio believes there could be permanent damage to Malaysia’s growth rate and competitiveness. (Bernama pic)

PETALING JAYA: The Covid-19 pandemic and the resultant restrictions have wreaked havoc on Malaysia’s economy, creating a slew of immediate problems such as high unemployment, depleted savings, some Malaysians driven to raising a white flag to ask for help to feed their families, and a bevy of others.

On top of this, if policymakers are unable to devise a comprehensive economic recovery plan that does not rely on lockdowns, economist Paolo Casadio believes the long-term scars could be far deeper than the wound itself.

In the third part of FMT’s series on economic recovery, we cover the deeper impacts the pandemic could have, and the consequences involved if action isn’t taken to avoid them.

Low growth looms large

Paolo Casadio.

In the long term, the HELP university economics professor believes there could be permanent damage done to Malaysia’s growth rate and economic competitiveness.

“A decrease in investment is taking place. The highest level of overall investment reached in Q3 2018 is not going to be reached again in our forecasts until 2023. Even the ratio of investment-to-GDP is on a downtrend.

“This represents the quality of the economy’s growth, and it is related to the long-term capacity of the economy to produce goods and services,” he said, as low investments suggest a country is not being viewed as a productive destination for businesses.

In addition, disruptions to education will impact the quality of the country’s human capital, which in turn affects the productivity of businesses and thus, again, the economy’s ability to expand.

Tellingly, Casadio said that while the business community the world over has been rocked by the pandemic, there are signs Malaysia has been less adept at tackling the challenges posed by the pandemic, and had altered the country’s regional competitiveness.

“When we compare the negative devolution of Malaysia during this crisis with the evolution of the Singaporean economy or with the recovery of Vietnam, we see the ground lost in terms of relative position.”

How does this actually affect Malaysians?

While unemployment has reached record numbers during the pandemic, a return to “normalcy” may not fix the problem if poor growth is not addressed.

Historically, in order to accommodate an ever growing labour force – produced locally and brought in from abroad – the economy has required a growth rate of around 5% a year.

If growth is limited to 3.5%-4% a year for the foreseeable future, which Casadio projects, there will be a rise in people who will not be able to find work even if they want to or have adequate skills, as demand for jobs will outstrip supply.

“If we also factor in the effects of automation and the different ways the adoption of new technologies through the fourth industrial revolution will allow firms to save on labour costs, the unemployment situation could become a serious structural problem that new generations will face,” he said. - FMT