A SHARP but brief hit to the economy from a temporary shutdown is far better than letting the coronavirus hurt the country over a prolonged period of time, said economists.

This is because measures to boost the economy in Malaysia and worldwide have not worked, they said, as stock markets continue to plunge.

Covid-19 has also destroyed consumer confidence that leads to consumption and demand, which drives business. The virus is now present in more than 150 countries and sickened more than 200,000 people globally.

Putrajaya has enforced a movement-control order that shuts non-essential private and public sector premises from today until March 31 to control the spread of the virus.

Economists said the shutdown is a necessary pain but the government could do more to help businesses weather the storm and prevent them from retrenching workers.

This is so that when the movement order is lifted, businesses, particularly SMEs, can quickly get back on their feet.

“The government’s priority is to fight the outbreak and to protect public health. Only then will confidence be restored,” said Lee Heng Guie, who heads the Socio-Economic Research Centre.

“It’s a tough decision that will disrupt and inconvenience many and the economic impact will be painful.

“But it’s better to take a short, painful hit rather than have the problem drag out. You can’t just keep cutting interest rates and pumping in more money,” he said, adding that this is what the US Federal Reserve Bank is doing to boost the economy.

The Fed cut interest rates to near zero but stock markets continued their downward spiral as Covid-19 cases increased in the US and Europe, said Lee.

“Cutting interest rates is not going to fight the virus. That’s why this order is important and necessary.”

Weathering the storm

As part of the controlled-movement order, business premises have been ordered to shut down temporarily, except those classified as essential services – water, electricity, telecommunications, postal, transport, oil and gas, banking, healthcare, pharmacies, prisons, ports, airports, security, defence and food.

Businesses said the impact will be huge while some are considering either putting their staff on unpaid leave or retrenching them altogether.

Economist Dr Yeah Kim Leng said it’s too early to assess the scale of the impact of the next two weeks other than to say that it will be worse than the government’s initial projections.

Prime Minister Muhyiddin Yassin said Covid-19 has so far shaved off 0.8-1.2% of economic output or gross domestic product, a potential loss of up to RM17.3 billion.

“These figures will have to be revised upwards and the impact will be based on how long the shutdown lasts,” said Yeah of Sunway University.

What the government can do to mitigate the shutdown’s impact is to help SMEs, which lack cash reserves.

“SMEs with no cash reserves are at risk of going under because there will be no revenue and they can’t keep their workers on the payroll. They need working capital in order to survive.”

Businesses in sectors, such as aviation, travel, hospitality and retail, have been the hardest hit by the virus even before the restriction begins today and are at most risk of closing shop.

Yeah said the government must come up with additional help for SMEs in these hard-hit sectors, including getting banks to defer loan repayments and providing income support.

“This is a critical period because it will help them survive and ensure that their recovery is smooth.

“It’s very bad to let businesses go bankrupt and die because that will destroy economic capital and further harm the economy.” – March 19, 2020.