Will the Economy Open by October?

 Hopes are pinned on the National Recovery Plan (NRP). Under Phase 4, we could do so – that assumes the immunization program meets target. And the key is to get Klang Valley, Penang and Johor on track because 50% of GDP contribution is from them.

Source: www.themalaysianreserve.com

But is that optimism? MIDF Research in a July 28 report, said that the prospect of recovery could commence by Q4 of 2021. However, Malaysia University of Science and Technology (MUST) believes Malaysia is in a long-haul recovery. Their estimates suggest Q1 of 2022 and to pre-crisis levels by Q1 of 2024. The micro, small and medium enterprises (MSME) sector took a big hit in 2020, RM40.7b in losses. It continued into 2021 with larger companies also seeing impact of the lockdowns. Labor market is weak with over 728,000 unemployed or an unemployment rate of 4.5%. In addition, 2.1 million persons were under-employed.

RHB Bank’s view is that there are positive points for recovery with exports moving up and may improve further in the months ahead. These are largely electronics and pharmaceutical sectors. Consumer sentiment may even show an uptick with lockdown over. The months to watch are August and September.

Will private sector consumption pickup? MCOs have suppressed demand. And re-opening of sectors may release pent-up demand. But is that true? Savings are exhausted. EPF contributions have been wiped-out for 9 million account holders, debt has risen and repayment of loans ahead. In 2021, average salaries fell 15.6% and more than half of salaried employees earn less than RM2,062 per month. And if 20% of the workforce is unemployed or under-employed, where will this pent-up demand come from?

If fully vaccinated people are allowed interstate and even international travel then we may have brighter prospects for tourism, restaurants, bars and shopping malls. Otherwise, we are looking at more closures and bankruptcies.

The key is for the Government to engage actively, with industry groups and others to map-out strategies. Re-opening must also include sectors that have linkages, otherwise it is a muted recovery. A stable Government, a listening Government and a responsive Government will enable the private sector to perform and revive the economy. Even then, we may only see recovery by mid-2022 and a full restoration to pre-pandemic levels by late 2023 or early 2024.

Reference:

All hopes pinned on the National Recovery Plan, Ganeshwaran Kana, The Star, 31 July 2021