ECONOMISTS anticipate stronger economic growth in the second half of the year, after a poor showing in the second quarter.

Malaysia recorded its highest-ever gross domestic product (GDP) contraction of -17.1% in the last quarter as the economy reeled from the effects of the movement control order (MCO) and Covid-19 pandemic.

Bank Negara expects a full year GDP growth of -3.5 to -5.5%.

Experts said the economy would perform better from May in tandem with the easing of movement restrictions with some forecasting double digit growth in the third quarter.

Growth, they said, would be fuelled by private consumption driven by consumer sentiments based on developments in the coronavirus situation.

Associate Professor of economics at Universiti Tunku Abdul Rahman, Wong Chin-Yoong said the economic sectors have resumed operating as usual.

“There should be double digit quarterly growth indicating strong economic rebound. That said, the year-on-year growth for the full year will be in the single digit,” he said.

As for the fourth quarter, he said the conditions would not be as unfavourable as earlier in the year, with no new waves of unemployment and closures from October to November.

“What you have seen is that from June to September, many people have returned to work.”

However, he expects fourth quarter growth to be weaker than the third quarter as the economy rebound from negative growth in the previous quarter.

Economist Hoo Kee Ping projects that strong growth in the fourth quarter as the global economy recovers from two consecutive quarters of little to no growth due to the pandemic.

The economic recovery will also depend on the availability of a vaccine for the novel coronavirus.

Many pharmaceutical companies around the world are carrying out vaccine trials.

Border closures and travel restrictions can be lifted once a vaccine is discovered and the outbreak can be controlled, he said.

“It’s mainly about vaccines (development). The economy will not suffer from a Great Recession. The two quarters of recession are over,” he said. 

He added that industries such as tourism and retail which were still performing badly would only recover after March 2021.

Dreaded second MCO
 
Institute for Democracy and Economic Affairs (IDEAS) senior economist Adli Amirullah said although the economy was showing signs of recovery, it could be difficult for people who lost their jobs to find new employment this year.
 
He said the growth of the domestic economy would very much depend on private consumption and sentiments of those with an income. 

With the spike in Covid-19 cases, Adli said there were fears of another lockdown. 

“If a movement control order were to be implemented, the economy would be in shambles in the fourth quarter,” he said.

He added that the new RM10 billion Kita Prihatin stimulus package would have a multiplier effect on growth.

However, the additional initiatives under the latest package might not be of much help to the bottom 40 group, especially those who had lost their jobs.

“Our businesses cannot return to the position it was in before the pandemic. If the government continues to strengthen the stimulus package and introduce new policies to assist the recovery, then the fourth quarter can be more positive,” he said.

He added that Putrajaya should also continue with assistance programmes to help vulnerable communities weather the challenging economic conditions.

Showing resilience

Meanwhile, Wong said many companies choosing to repay their loans without extending the moratorium was a sign that they have the ability to weather the challenging economic conditions.

“So I don’t think businesses will suffer if there is no extension of moratorium or will have to close shop,” Wong said.

He noted that April and May saw a decline in new applications for bank loans across the board, except applications for working capital. This, he said, was an indication that there is a lack of sales revenue.

The situation improved in June, which goes to show that companies have income to sustain and cover their working capital, he said.

He said working capital no longer constitutes a bulk of the company’s balance sheet. It should ideally be at 20% of the expenses.

Wong said the government should focus on assisting those who are unemployed due to business closures and layoffs to transition into new jobs.

This includes relaxing the rules for employment insurance so that they will not rush to hunt for jobs and just accept any opportunity that comes their way as a mismatch between skills and jobs is actually a waste of human resources.

“The government must also make their living sustainable, and this is not a small task. The government’s assistance should be aimed at the unemployed, not the businesses.”

How businesses fared was best left to market forces to dictate, he said. – September 28, 2020.