MORE economic stimulus may not be needed if the Covid-19 situation in the country does not become more severe in 2021, said economists.

Budget 2021 included some stimulus measures and more targeted support for vulnerable groups, and with most economic sectors operating as usual again, they said.

However, they felt Malaysia might miss the 6.5% gross domestic product growth target for 2021 as the projection was based on the abatement of Covid-19 cases.

Malaysia has been hitting record highs of daily cases, with the tally averaging between 1,000 and 2,000 new infections a day.

Sunway University Business School Professor of Economics Dr Yeah Kim Leng said a quick and efficient implementation of the budgetary measures, particularly the national vaccination programme, is crucial to sustain the recovery momentum.

“(However) should there be clearer signs of a U or K-shaped growth trajectory taking root in the second half, another stimulus package may be warranted to fill the economic gaps and cracks,” he said.

A U-shaped recovery occurs when the economy experiences a sharp decline in key metrics, such as employment, GDP, and industrial output, without a clearly defined trough.

This is followed by a relatively healthy rebound to its previous peak without a period of stagnation.

A K-shaped recovery happens after a recession where different parts of the economy recover at different rates, times and magnitudes.

Malaysian Institute of Economic Research senior research fellow Dr Shankaran Nambiar said the government would most likely be unable to afford another lockdown or more stimulus packages unless the severity of cases increases.

“There is also no need for such packages since most industries are back running and most economic activity has resumed,” he said.

“The government is more likely going to look at restoring the economy by putting in place mega- projects.”

He also warns that some Malaysians may still find themselves left behind.

“Some programmes, such as the digitalisation programme, will benefit only certain segments of the economy – but not the less skilled, unskilled and the B40, who might find themselves displaced.”

Shankaran said it was still uncertain how the spread of the virus could pan out globally and in Malaysia.

Economic activities will increase if the pandemic abates from the second quarter, he said.

This will also depend on the situation in the United States, European Union and United Kingdom, he added.

In a less optimistic case, Covid-19 cases in Malaysia and overseas will only start to reduce in the second half of the year, said Shankaran.

“This is more likely since the numbers are escalating in Malaysia and it will not be until after the first quarter that a reasonable section of the population will be vaccinated.

“The initial beneficiaries will be front-liners and this will help protect those most at risk.  This number will not be enough to curtail the spread of Covid-19,” he added.

No to economic shutdown 

Yeah said it is critical to contain the pandemic without shutting down the economy in case medical facilities become overstretched while social and business activities are being restricted further.

This could lead to an extended U or K-shaped recovery.

Yeah is expecting a tepid growth and U-shaped economic recovery for 2021. 

“The economy is on track for a recovery in 2021 but the shape of the trajectory – whether it is V, U or K-shaped, remains a conjecture.

“Due to the continuing high Covid-19 infection rates, the odds for the economy this year appear to have shifted slightly from the expected V-shaped rebound of 6.5%-7.5% GDP growth to the more tepid sub-5% recovery this year that is U-shaped,” he said.

A K-shaped recovery is possible if the pandemic remains out of control, prolonging the downturn of the severely affected sectors, such as aviation, retail, tourism and hospitality-related industries.

He said agriculture, manufacturing and other less affected service industries, such as finance and ICT will recover more quickly.

Yeah said while the economy is not out of the woods, it is still expected to emerge from the 2020 recession in the second quarter and improve further in the second half of the year.

The speed of recovery will depend on the measures to contain the pandemic and the effectiveness of vaccination rollout locally and in major trading partners, such as the US and Europe.

Putrajaya has spent RM305 billion, through a series of economic stimulus packages, to kickstart the economy interrupted by Covid-19. 

This is in addition to a mammoth RM322.5 billion for Budget 2021. – January 7, 2020.