ECONOMIC losses from the third movement control order (MCO 3.0) are projected to be smaller than the first MCO last year, but damage will come from repeated short-term market disruption that will hurt some sectors more than others, economists said.

This will affect confidence in the market and slow down Malaysia’s overall economic recovery, said Universiti Tunku Abdul Rahman economics associate professor Wong Chin Yoong.

Some sectors will be more badly affected than others, such as tourism and leisure, which cover spas, nightclubs and entertainment centres. Tourism will also be hit by interstate and inter-district travel bans.

“Other industries are proceeding as usual (with standard operating procedures in place), so the impact is not as significant,” Wong told The Malaysian Insight.

There will be short-term disruptions to places flagged as hotspots by the hotspots identification for dynamic engagement (HIDE) system, which must close for sanitisation, but Wong said this is mainly affecting shopping malls.

“Malls may be closed for a few days but people can still buy what they need at other places.

“While the impact will be felt by the malls concerned, there is no significant impact on the overall economy, as other people and other retailers elsewhere will still benefit.”

Overall, Wong said MCO 3.0’s impact will not be as bad as last year’s lockdown, when all but essential services came to a halt.

“The greater impact from this MCO will be emotional. Business decisions will also be thrown awry, things will stall or be forced to slow down.”

Research houses have projected that MCO 3.0, from May 12 till June 7, may result in economic losses of RM300 million a day, compared with the whopping RM2.4 billion during the first MCO in March last year.

GDP growth may reach target

Although economic recovery will be slowed, Wong said the country does not need to lower its GDP forecast from the original 6% to 7.5%, to 4% to 5%.

“It is still too early to determine whether the 6% growth rate can be maintained due to the impact of MCO 2.0 and 3.0 on economic performance.”

Wong said there is still growth of export-orientated industries such as manufacturing and raw products, which will make up for shortcomings.

Malaysia’s GDP for the first quarter of 2021 showed negative growth, but Wong said the 0.5% contraction was better than market expectations.

The economy contracted 17% in the second quarter of last year, the country’s worst performance under the pandemic, and Wong does not believe it will get any worse than that.

Services sector, SMEs to be hard hit

Subang Jaya MP Wong Chen said that MCO 3.0 will have limited impact on exports and overall production as factories are still running full steam.

“Rather, it is domestic retail, consumption and services that will have to brace for a big slowdown for a month,” he said.

“The services sector is about half of the economy and I am expecting a 20% drop in this sector,” added the PKR lawmaker, who is on the parliamentary select committee for finance and economy.

Institute for Democracy and Economic Affairs chief executive Tricia Yeoh said the third MCO will be devastating especially for small and medium enterprises, which have been grappling with a series of lockdowns for more than a year now.

“The new MCO will add pressure on an already strained economy. The government will be faced with the difficult decision of having to borrow more (which is still possible) to provide more aid to struggling small business owners.”

Economic recovery will be one of the government’s biggest challenges, post-pandemic, she added.

More observers are noting that different strategies for recovery are needed for different sectors, as the impact of Covid-19 is not equal on all industries.

Former deputy international trade and industry minister Ong Kian Ming said the government should get the different ministries to develop targeted strategies for the sectors under their purview, instead of leaving a blanket strategy to the finance and human resources ministries.

Yeoh added that strategies and lockdowns must be accompanied by mass testing and contact tracing.

Similarly, Wong said since the government has decided to keep factories and construction projects going during MCO 3.0, it must ensure sufficient improvement to curb the spread of Covid-19 among workers.

Workplaces still form the bulk of Covid-19 clusters, although health authorities say the spread is also largely in the community now, with 80% of cases not linked, or sporadic.

From mid-April to early May, Covid-19 cases have been trending between 2,000 and 3,000 daily. From early May till now, cases have exceeded 3,000, hitting more than 4,500 on some days.

There are currently more than 41,000 active cases, and health authorities have warned that intensive care beds for Covid-19 patients are reaching capacity. – May 15, 2021.