THE heat from the Covid-19 pandemic continues as China is starting to show signs of an economic downturn this quarter, with a US$7.1 billion (RM30.6 billion) trade deficit signalling that its exports have fallen. The US and European Union will follow with a lag of about two or three months, given the Covid-19 crises started later there. Doubtless, the challenging economic downturn is conceivably worse than the 2008 global financial crisis. The lockdown in several countries, such as China, Denmark, France, Ireland, Italy, New Zealand, Poland and Spain have led to such an abrupt change in the business environment that it is halting the global manufacturing chain. The trade deficit is not a good sign, as the US and China are Malaysia’s principal trading partners.

 
    
In Malaysia, home to about 32.6 million people, there were 2,470 total cases, 34 total deaths, and 388 recovered as at March 29. This has led the government to coordinate a response. At the onset of the Covid-19 outbreak, the government announced a RM20 billion economic stimulus package on February 27, and boosted the fight with the RM250 billion Package Prihatin. Among the RM250 billion, RM128 billion is for the well-being of Malaysians, and RM100 billion is for Malaysian businesses, including small medium entreprises (SMEs). The Package Prihatin is 2.5 times more than what India, with a population of 1.3 billion, is giving in its Covid-19 relief package equivalent to RM97.37 billion as at March 26. 

Fear that the Covid-19 outbreak will hurt people’s welfare and businesses, most policymakers have drastically coordinated their response by pouring money into the economy to stimulate economic activity. The movement control order (MCO) is vital to break the chain of infection, but it will limit the ability of domestic firms to produce output. The effort of pouring money into the economy will probably increase purchasing power, and panic-buying by consumers may help as well. Such purchasing power is likely with limited output, and could lead to stagflation. While the counter-measure is correct, it is probably more useful for the post-Covid-19 period. The funds should now be utilised to support the health services, such as by building more hospitals with more beds to treat victims. 

The Package Prihatin comprise 58.44% of Malaysia’s total reserves as at February 2020, and 25.98% of Malaysia’s total revenue in 2018, based on International Monetary Fund (IMF) data. The banking sector, led by Bank Negara, is playing a pivotal part in granting an automatic six-month moratorium on loan repayments. The banking sector plays a significant role in relief of Malaysians’ financial obligations, with some banks provided a six-month moratorium on loan payments with no compound interest or profit rate. This incentive will help inject more cash into the market. But the question arises whether the banking sector in Malaysia is ready if the Covid-19 fight is prolonged for more than six months. The six-month loan moratorium is an extreme measure that the BNM can implement now, but an extension will burden the banking sector. At worst, it could bring down the banking sector and damage the economy further. 

The real risk to the economy, however, is job loss. Businesses are temporarily closing down. Some companies may have even offered unpaid leave or laid off labour, leading to a domino effect on the economy. People who are not able to earn an income will be at risk as this leads to them being unable to pay their loans for an extended period or buy goods, which will slow down the economy. 

The Covid-19 pandemic isn’t just hurting people. For example, airlines, such as AirAsia, Malindo Air and Malaysia Airlines, have grounded most flights and are calling for help. Hoteliers that have prepared for Visit Malaysia Year 2020 (VMY2020) are were targeting an influx of tourists mid-February 2020 now have to comply with the MCO. Cinemas, restaurants and travel agents are all in bad shape. The global manufacturing chain will soon disrupt the automotive industry in Malaysia. The oil industry, facing various challenges, such as negative sentiments, Covid-19 outbreak and an Opec price cut will put pressure on domestic oil and gas companies. Oil prices have slumped to US$21.51 per barrel as of March 29, when historically, the best estimate cost of oil is US$50 per barrel, and for OPEC, US$30 per barrel. Maintaining jobs is essential, and the government should coordinate its response in this area so that the economy and people’s well-being will not suffer too greatly due to the Covid-19 pandemic. – March 31, 2020.
    
* Abdul Aziz Karia is a UiTM lecturer on Business Economics.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.