WHETHER the conditional movement-control order (CMCO) to reopen most sectors is lifted “too soon” or the right measure to kickstart the economy crushed by Covid-19, a recession is looming, said economists.

Sunway Business School professor of economics Dr Yeah Kim Leng said the downturn is imminent due to the prolonged shutdown of economic activities and ensuing plunge in demand in most countries in response to the pandemic.

A recession is defined as two consecutive quarters of economic contraction.

“The question is the severity, duration and transmission of supply and demand shocks through trade and investment linkages.

“In Malaysia’s case, the easing of the MCO will ease the economic losses and limit the contraction to perhaps two quarters,” Yeah told The Malaysian Insight.

“Depending on the success in suppressing the virus spread and pace of economic recovery in other parts of the world, we are looking at a gradual resumption of growth in 2021.”

This coupled with quick and effective implementation of the three stimulus packages and early approvals for almost all sectors and businesses to restart will limit the downturn, he said.

However, economic recovery will be threatened should there be a resurgence of coronavirus infections, he added.

Another economist said the CMCO was abrupt and a policy mistake.

Senior fellow at the Malaysian Institute of Economic Research Dr Shankaran Nambiar said the reopening of economic sectors should have been done in phases and a targeted manner.

“The abrupt reopening of the economy is a policy mistake.  There is no denying that the economy has to be reopened as we are not going to live in a virus-free environment and we cannot remain in lockdown forever.

“But this should have been done in a phased and targeted manner.

“There is no doubt that we are heading into a recession. A recession is inevitable since the global economy is in tatters,” he said.

Shankaran said it’s important to restore the confidence of consumers and businesses in the economy.

Households still fearful and anxious about the state of public health will not contribute to the growth of domestic demand.

The lockdown led to losses of around RM63 billion, Prime Minister Muhyiddin Yassin said.

Finance Minister Tengku Zafrul Tengku Abdul Aziz said in a recent interview that gross domestic product could shrink more than the initial forecast.

Bank Negara Malaysia in April put GDP growth at between -2% and 0.5% this year.

“But that forecast was made after just two weeks of movement curbs. We’re now more than five weeks in… so our GDP could shrink even more,” Tengku Zafrul said.

The central bank’s monetary policy committee also slashed the overnight policy rate by 50 basis points to 2% on Tuesday, the lowest since 2010, citing deteriorating economic conditions caused by the pandemic.

It said the containment measures globally, international border closures and the consequent weak external demand environment will exert a larger drag on domestic economic activity.

“The movement-control order (MCO), while necessary to contain the spread of the virus, has also constrained production capacity and spending.

“Labour market conditions are also expected to weaken considerably. Economic conditions would be particularly challenging in the first half of the year.

“The fiscal stimulus measures, alongside monetary and financial measures will, however, offer some support to the economy.”

However, BNM said the outlook for growth will continue to be subject to a high degree of uncertainty, particularly with respect to developments surrounding the pandemic. – May 7, 2020.