News Analysis: Malaysia faces challenging economic recovery amid high COVID-19 infections

2021-07-09 11:05:39 GMT2021-07-09 19:05:39(Beijing Time) Xinhua English

KUALA LUMPUR, July 9 (Xinhua) -- Malaysia is facing a challenging recovery as high COVID-19 infections continue to take heavy toll on its economy, experts and analysts have said.

Executive director of the Socio-Economic Research Center Lee Heng Guie told Xinhua on Friday that his 4-percent GDP growth estimate for Malaysia this year is under threat, depending on the future path of the outbreak, the pace of vaccination rate and how long it takes for the reopening of more economic and social sectors.

According to Lee, the nationwide lockdown in June and recently enhanced movement control order (EMCO) in Malaysia's capital city Kuala Lumpur and the adjacent state Selangor are estimated to result in a total economic output loss of 65.4 billion ringgit, or 4.5 percent of GDP, in June and the first half of July.

Last month, Malaysian Prime Minister Muhyiddin Yassin unveiled a COVID-19 exit plan, comprising four phases of the exit strategy to help the country navigate its way out of the pandemic.

The lockdown started in June is under Phase 1, in which all economic sectors are not allowed to operate with the exception of essential economic and service sectors.

The country will only move into Phase 2 if fresh daily infections drop below 4,000 and at least 10 percent of the population fully vaccinated, among other criteria. The economic activities will be opened in stages under this phase by allowing up to 80 percent of staff returning to work with some additional non-essential sectors operational.

The transition to Phase 3 involves less than 2,000 daily infections and 40 percent of the population fully vaccinated. Under phase 3, all economic activities will be allowed to operate except activities that are at high risk for COVID-19 infections.

Meanwhile, Phase 4 will be rolled out when fresh infections stay below 500 per day and 60 percent of the population fully vaccinated, where all economic sectors will be opened, with more social activities allowed including inter-state travel and domestic tourism.

Currently, only five out of Malaysia's 13 states are moving into Phase 2. Malaysia reported a new record high COVID-19 cases of 9,180 on Friday, bringing its total COVID-19 cases to 817,838. Meanwhile, the authorities are speeding up the vaccination drive with 7.2 million people having received a shot and nearly 3.2 million, or 9.8 percent of the population, fully vaccinated as of Thursday.

"The economic and financial devastation on domestic demand via cutback in demand, supply disruptions, reduced income, weakened consumer sentiment and restricted mobility have punctuated the low-base effect-aided 2Q GDP growth," said Lee.

According to him, July and August are important months to watch as the high level of vaccination will offer a glimpse of hope for a fast transition into phases 3 and 4, allowing more economic sectors on the positive list and also social sectors to start operations accordingly.

"We expect continued challenging recovery in the fourth quarter as a restoration of consumer spending will be gradual, depending on the progress of vaccination and the containment of the virus spread. The continued cash aid and loan moratorium help provide a temporary cash flow relief, but a weak recovery in the labor market remains a drag on consumer spending," he said.

The unchecked COVID-19 infections and prolonged full lockdown in Malaysia has prompted another round of economic forecast downgrades among economists.

Maybank Investment Bank Research said in its recent report that it cut Malaysia's 2021 real GDP growth forecast to 4.2 percent from 5.1 percent previously, due to tighter restrictions in May and lockdown since June.

"This mainly reflects lower growth forecasts for the largest segment of supply-side and demand-side of the economy i.e. services sector and private consumption. Both are 58 percent and 59.5 percent of 2020 GDP respectively," it said.

Public Invest Research also said in its recent report that Malaysia's 2021 GDP growth, which was initially anticipated at 6.2 percent, is now dialed down to 5.1 percent, following effects of the current restrictions which are estimated to be costing the economy about 1 billion ringgit per day of the shutdown.

It said that the slow vaccine registration rate (about 53 percent of the adult population) is also a concern as that could hamper the target to achieve herd immunity by the year-end, which could risk the full opening of the economy.

The Malaysian economy contracted 5.6 percent in 2020, the biggest decline since 1998, dragged by the imposition of movement restriction on a number of states since mid-October last year to contain the spread of the COVID-19 pandemic.

Malaysian Finance Minister Tengku Zafrul Tengku Abdul Aziz indicated earlier that the government will need to revise down its official GDP forecast of between 6 percent and 7.5 percent this year due to the latest lockdown. Enditem