MALAYSIA’S economic prospects currently look dim and other than some stop-gap measures to boost the economy, experts said, long-term measures are missing.

Economists told The Malaysian Insight consumption is expected to dive by October, as most Malaysians will want to save money, further dampening the economic outlook.

A few weeks into the Penjana economic revival policies, economists said the government has yet to give clear post-pandemic directions to assuage the people’s anxiety.

The government has yet to offer a follow-up policy to the six-month moratorium on all loans, they said, adding that this may lead to a consumption downturn by October, when the moratorium expires.

Institute for Democracy and Economic Affairs (IDEAS) senior economist Adli Amirullah told The Malaysian Insight the government should prepare policies in anticipation of a recession.

While many expect the government to unveil post-pandemic economic policies, Penjana was instead an extension of the previously announced economic aid, while follow-up measures remain unclear.

“Optimistically speaking, the recession is not only confined to us in Malaysia so it will not be too bad, but it will hurt all the same.

“But the question remains, how will the government respond to this economic situation?”

The government must have clear policies for a post-pandemic economy and even while the prime minister has delegated the task to relevant ministers, such policies are not forthcoming, he said.

“Many have lost their jobs but we don’t have any answer for them. The government must have clear policies and inform the people of them, that includes raising them in Parliament so everyone can have a clear idea of them.”

He said although such policies may not be implemented immediately, it can restore confidence in the economy and should not be neglected.

Unemployment figures are likel y to rise in the second and third quarters if the government does not have any new plan, he said.

SMEs hit hard

Universiti Tunku Abdul Rahman’s associate professor in economics Dr Wong Chin Yoong said big industries in Malaysia are not hit hard in the pandemic and growth numbers could be similar to that of the first quarter, which are better than market expectations.

However, he said, such optimistic numbers will not be reflected by unemployment figures, as the pandemic hit small and medium enterprises the hardest.

Wong also warns of an impending downturn of consumer sentiment by October if the government does not take proactive steps.

Most Malaysians would be pinching pennies, especially after the six-month loan moratorium, as people will need to resume payments, he said, leading to reduced consumption.

As of now, the government has yet to announce any measure for after October but he warns against extending the moratorium.

“We should let the financial market stabilise, because once you get addicted (to the moratorium), then you are only prolonging the issue.”

The fact that the government guarantees the loans means that banks are not actually worried about the delays in payment as they derive their income from the interest.

Government spending will increase the national debt and deficit but refusal to spend may worsen the situation, he said.

Malaysia can still borrow if there are not enough funds as the country’s debt repayment reputation is good, he added.

Private consumption

Both experts said in the short term, Putrajaya should focus on spurring private consumption.

The key to helping businesses recover will be by restoring consumer confidence, they said.

Wong said stimulating private consumption should be the top priority of the economic recovery plan as companies will need enough revenue to sustain themselves.

“Of the RM35 billion allocated under the Penjana package, only RM750 million goes into people-centric initiative which accounts for only about 2%, which is too small,” he said.

At least 30% of the package should be allocated to these initiatives.

Consumption is also the key driver to job creation for the 778,000 who recently became unemployed and to rejuvenate failed businesses, he said.

Spending can create a multiplier effect of 1.5 times, which means RM750 million can create an effect valued at RM1.1 billion.

Adli said consumer sentiments are still soft as many remain cautious and pessimistic about the state of the economy.

He added that the capital injection to spur consumption is not significant.

“People are not spending on other things besides necessities, hence there is room to grow consumption. They may only spend on basics, such as groceries, daily expenses and food. They are not spending as they used to.”

Tax breaks and discounts could help in spurring private consumption although the effects may be minimal, Adli said.

The movement-control order (MCO) implemented in mid-March to stem Covid-19 led to mass layoffs. – June 25, 2020.