'Light at the end of the tunnel' remains elusive

As hard as it is to grasp the reality of facing a recession caused by the unprecedented Covid-19 pandemic and the collapse in oil price, it is really happening.

The International Monetary Fund (IMF) had just revised its global growth forecast, showing a total reversal from its previous estimate of 3.3 percent in January to -3.0 percent for 2020.

The more pessimistic projection is on the back of broad economic downturns - United States (-5.9 percent), Euro Area (-7.5 percent), Middle East and Central Asia (-2.8 percent), Latin America and the Caribbeans (-5.2 percent), Sub-Saharan Africa (-1.6 percent), and Emerging and Developing Asia (1.0 percent).

This is because the world has been put in a great lockdown as no country is spared from the deadly virus.

Within the Asean region, Malaysia is expected to be one of the laggards with a decline in growth by 1.7 percent, which is within Bank Negara Malaysia’s (BNM) forecast range of -2.0 percent to 0.5 percent.

Several bank economists expect the Malaysian economy to be at a poorer position this year with a plunge of around 3.5 percent in growth.

Nonetheless, global economies are expected to undergo rebounds in 2021, including Malaysia, with a substantial expansion of 9.0 percent. This is much higher than Fitch Ratings’ projection of 5.8 percent.

To be mindful of the numbers, the IMF baseline scenario is based on the expectation that the global pandemic would gradually disappear by second-half of 2020 (2H20), which then could support the restoration of economic activity in 2021.

What happens if such will not be the case? This is not impossible given that vaccines have yet to be finalised, and the recovery process depends on how effective government policies are to support each part of the economy. Even the IMF is aware of this fact.

But, it obviously looks strange that despite this knowledge, no empirical exposition on this is done by the IMF when the consensus is for the pandemic to last between 12 to 18 months. That is how long the experts are aiming to deliver the vaccine.

The basis of the six-month duration for the pandemic held by the IMF is based on the experience during the severe acute respiratory syndrome (Sars) outbreak in 2002-2003, but many feel that the current pandemic is more severe than Sars that it could outlast Sars' six months.

Gloomy jobless rate

Meanwhile, Department of Statistics Malaysia (DOSM) chief statistician Mohd Uzir Mahidin recently said the negative impact of the movement control order (MCO) on the labour market would be reflected in the March’s unemployment data that is yet to be released.

This is because many businesses are on pause or shutdown, leading to job losses. Concerns on the gloomy outlook of the jobless rate have been raised given that the MCO has not been lifted.

Income losses and movement restrictions have affected household sentiment and consumption, which in turn has placed the retail sector in a bad place. Thus, the Retail Group Malaysia (RGM) has lowered its projection to -5.5 percent for this year.

Before the announcement of the third phase of MCO, DOSM reported that most Malaysians are not financially prepared to bear further extension of MCO. The most vulnerable are those self-employed with some only having savings of less than a month's salary.

On the health front, Health Ministry director-general Noor Hisham Abdullah said the ministry has not been able to increase daily testing capacity for Covid-19 to reach its target of 16,500 tests per day. The current daily testing stands at 11,500 tests per day with the utilisation of 43 laboratories across the country.

These are some of the public information that has kept everyone in constant worries.

Global cooperation

On the bright side, the government appears to be committed to supporting the rakyat as well as businesses amid this difficult time. Finance Minister Tengku Zafrul Tengku Aziz has indicated that six out of ten key measures under the recently launched Prihatin stimulus package have been rolled out so far, representing 69 percent of the RM260 billion package.

They include bank loan moratorium, Employees Provident Fund’s (EPF) i-Lestari withdrawal facility, wage subsidy programme, Bantuan Prihatin Nasional (BPN) payouts and Bank Negara Malaysia’s (BNM) special relief facility.

Furthermore, the number of new Covid-19 cases daily has also been trending below 200 and the recovery rate is already at 53.4 percent as of April 16. This means the quarantine order is working and there remains hope.

But really, the main exit strategy from the twin crisis is global cooperation coupled with transparent communication. Massive testing is critically needed now.

To do this, governments across the globe should expand collaboration by raising the production and distribution of medical supplies through global supply chains. In the end, countries would need each other to restart the economies via multiple channels such as trade.

Talking about trade cooperation, reduction in tariffs and non-tariff barriers that hamper cross-border trade and global supply chains should be renegotiated.

The recent effort from Asean, China, Japan and South Korea (Asean+3) to jointly fight the pandemic by keeping their markets open for trade and investment as well as enhancing cooperation to ensure adequate health supply, food security and sustainability of the supply chain is the way forward.

Secondly, while fiscal stimulus has been lauded in addressing the short-term setbacks, policies need to be reviewed from time to time according to people’s needs. Subsequently, a long-term fiscal approach needs to be addressed because reviving the economy after MCO is another part of the story.

Should fiscal space become a concern going forward, policies can be rescaled by targeting certain sectors. Restarting-mode measures such as hiring subsidies, worker retraining programmes and incentives to promote digitalization are some of the components that need to be the centre of attention.

All in all, the right and timely policy support, alongside mutual cooperation are the main drivers to fight the pandemic and to restore our economy.

Therefore, it is still premature to gauge when we will see the light at the end of the tunnel to this pandemic despite the optimism of the IMF that this could take place in 2H20.

But these are all just projections and subject to changes, and so the proverbial light at the end of the tunnel remains elusive.

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NUR SOFEA HASMIRA AZAHAR is a research analyst at Emir Research, a think tank focused on strategic policy recommendations based on rigorous research. - Mkini