THE extension of the movement-control order (MCO) necessitates a flooding of the Malaysian market with liquidity, Straits Times reports analysts as saying.

They said a technical recession in the first half of the year appears imminent, and whether the country can rebound in the second half depends on the amount of cash in circulation.

Estimates of a growth exceeding 4% for 2020 have been ditched as the government directive aimed at stemming the spread of Covid-19, now in force till April 14, forces businesses deemed non-essential to halt operations.

Economists believe that each fortnight at a standstill could drive Malaysia’s gross domestic product down by 1.5 to four percentage points.

The Malaysian Institute of Economic Research (MIER) called for “an extraordinary crisis budget” to offset an estimated 12%, or RM95 billion, decline in household incomes this year.

The RM20 billion pledged last month by the previous Pakatan Harapan administration was mainly targeted at saving the tourism industry, and was announced before the MCO took effect.

Another RM75 billion is “imperative” to prevent bankruptcies and up to 2.4 million job losses, said MIER.

Citi Research said Bank Negara Malaysia’s (BNM) move to grant a six-month moratorium on loan payments, in addition to earlier measures including the release of RM40 billion in retirement savings, “will provide cash-flow relief for indebted households and reduce bankruptcy risk in the near term”.

However, these measures can result in problems later as interest on deferred loans accrues over the six months.

A solution is to make cash cheaper in the future, said the report.

Barclays regional economist Brian Tan expects BNM to cut interest rates by one percentage point, “with a growing risk of more and earlier cuts”.

This would mean a total reduction of 1.5 percentage points this year, rivalling the easing during the 2008 global financial crisis.

The crash in global oil prices, caused by the coronavirus pandemic and a price war between Saudi Arabia and Russia, has also curbed Putrajaya’s ability to spend.

If the current mark of US$25 (RM108) per barrel holds instead of the US$62 projected in Budget 2020, the Treasury could be left short of RM10 billion in petroleum revenue.

However, some officials with state-linked banks believe that up to RM100 billion may be channelled by leveraging other reserves, with a focus on cash handouts and boosting healthcare infrastructure.

Malaysia yesterday reported 235 new Covid-19 cases – a new daily high – bringing the nationwide total to 2,031, with 23 deaths. – March 27, 2020.