The Malaysian Insight

MALAYSIA’S economy can recover from the abrupt collapse of the Pakatan Harapan government and the ensuing crisis, but the worst damage will be done to foreign investor confidence, economists said.

The crisis must also be resolved before the end of this week to ensure minimal impact on the economy, they said, noting how the stock market and ringgit have been sliding since Monday.

Malaysian Institute of Economic Research (MIER) senior research fellow Shankaran Nambiar said the political upheaval will cause foreign investors to adopt a wait-and-see approach.

“Foreign investors may not want to consider Malaysia as a destination till after the next general election when, hopefully, a greater sense of confidence and stability is established,” he said.

The damage from the political manoeuvring that also led to Dr Mahathir Mohamad resigning as prime minister is already apparent through the sharp tumble of the stock market and the currency, he said.

Shankaran said the economy is currently facing a triple threat – political turmoil, the Covid-19 outbreak and global economic slowdown.

“With the triple attack on the Malaysian economy, a growth rate of 3.8% will not come as a shock.

“But I would expect a reversal to normalcy in the next few weeks,” he said when asked on his forecast for the year’s gross domestic product (GDP).

“Hence, the current political turmoil will cause limited short-run damage but perhaps a longer lasting negative impact as far as investments are concerned,” Shankaran said.

Sunway Business School Professor of Economics Yeah Kim Leng concurred that if the political situation is resolved before the end of this week, the impact on the current quarter can be minimal.

“If the political situation is resolved quickly over the next few days, the economic impact on the current quarter will be minimal, otherwise there could be the double-barrel negative effects of Covid-19 epidemic and political turbulence,” said Yeah, who is also an external member of Bank Negara Malaysia’s monetary policy committee.

He said it is still too early for domestic politics to factor into the growth forecast.

“Should the political tussle continue to distract policymakers from focusing on the economy, it is likely that both the short-term and long-term GDP growth forecasts will be lowered,” he said.

Yeah previously projected 4.5% GDP growth for 2020.

Yeah said the current political crisis is also an opportunity to appoint a stronger cabinet, which will help the government regain public confidence and reverse the slide in the financial and currency markets.

It will also help mend eroded confidence among investors.

Bursa Malaysia fell to the lowest since December 2011 to close at 1490.06 on Monday, the day when the PH government collapsed and Dr Mahathir resigned.

This also saw market capitalisation of RM43.4 billion being wiped off the stock market in a single day.

However, it showed signs of recovery by Tuesday, when the index closed 0.73% or 10.82 points higher at 1,500.88.

The market closed at 1,495.19 points yesterday.

The ringgit, meanwhile, has been at RM4.2240/2270 against the US dollar on Monday, RM4.2310/2350 on Tuesday, and RM4.2230/2280 yesterday. – February 27, 2020.