The Malaysian Insight

MORE than 40% of economic sectors are set to be affected with the conditional movement-control order (CMCO) enforced in two states and the federal territories, said economists.

They told The Malaysian Insight that the CMCO in Sabah, Selangor, Kuala Lumpur, Putrajaya and Labuan could not have come at a worse time as some sectors’ recoveries were already slowing down, making the new curbs a double blow.

They said that even though most economic sectors are allowed to continue as usual under the CMCO, it has a drastic impact on both consumer and business confidence.

Socio Economic Research Centre (SERC) executive director Lee Heng Guie said the CMCO was adding more pressure on consumer sentiments.

“Initially, consumer sentiments showed signs of improving. People were returning to malls and there was an increase in social activities.

“But business confidence was still on the downtrend, and with the third wave of Covid-19 infections, the effects are inevitable,” Lee said.

However, he said, data showed that the economy has stabilised before the implementation of the latest round of CMCO, and some were also showing positive trends.

Lee said this was only the first month of the fourth quarter, therefore, the two-week CMCO will likely have limited impact on economic performance.

Lee, however, warned if the restrictions were to be expanded to other states, then the uptrend previously seen will be lost, adding that the level of economic impact depended on the level of restrictions imposed on the various sectors.

Even though only five states and territories are currently under CMCO, they account for nearly 50% of Malaysia’s economic activities and cannot be taken lightly.

Lee said Selangor on its own accounted for about 24% of the GDP, followed by Sabah (6%) and Kuala Lumpur (3.2%). Kedah, hit by a new wave of infections, also accounts for about 3.2%.

He added that due to the resurgence of Covid-19, the GDP forecast for the year will remain at around -4% but the fourth quarter as a whole may experience slight growth.

“If it’s going to be a wide scale CMCO, then GDP growth could be as much as -4.5% to -5%,” Lee said.

Slower, gradual improvement

Universiti Tunku Abdul Rahman associate professor in international macroeconomics Wong Chin Yoong, meanwhile, said the fourth quarter economic growth projections will now be different due to the CMCO.

Wong said the country’s economy was showing a strong rebound in July with a sharp “V-shaped” trend due to the loan moratorium, increased car purchases, and with both housing loans and commercial investments showing strong recoveries.

“The economic performance between April and June this year was better than the same period last year. So it can be counted as a V-shaped recovery,” he said.

However, loan applications have declined across the board in August, with economic recovery showing signs of slowing down.

Wong said this only showed that businesses and individuals were not optimistic about the economy.

He said even though the CMCO for now was confined to Selangor and Kuala lumpur in the peninsula, it will still have an impact on the national economy as people lack the same confidence as before.

“In the third quarter, economic recovery had already slowed down in August and September, and the rebound was also not as good as hoped. So as for the final quarter, November and December, it is also not looking good,” he said.

Wong also said further recovery would very much be dependent on the Covid-19 situation, if the pandemic can be contained this month with no further waves of infections.

On the economic impact of the CMCO, he said it cannot be compared to the initial MCO from March to June, where most sectors were closed and only essential services were allowed to operate.

“It’s only partial recovery now, not a complete one. However, certain sectors have had to close. They were already suffering before, and now they’re taking even more hits,” Wong said.

He said the impact was relatively minor for sectors that primarily involve office work, but those that are not allowed to open as usual, such as the services sector, will bear the brunt of the current setback.

Wong added that the economic projections for the year will be worse than before, but overall, the second half of the year will likely perform better than the first half.

“It will not be a strong V-shaped recovery, but a slower, gradual improvement,” he said. – October 18, 2020.