Malaysia ‘could not escape’ recession

Covid-19 is also expected to pose a double whammy on Malaysia


THE Covid-19 pandemic that has resulted in lockdowns of many nations all over the world is expected to make it harder for Malaysia to escape from a recession, as the country practises an open economy that is highly dependent on other countries.

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Monash University Malaysia VP (research and development) and Monash Malaysia R&D Sdn Bhd CEO Prof Mahendhiran Nair (picture) said Malaysia is very much a part of the whole big picture and will be affected one way or another.

“Malaysian firms are dependent on other firms in these countries for input materials. If they cannot supply, our industries will not be able to produce the products.

“These countries also import our products and services. If they go into a recession, they will buy less of our products. It will adversely impact our economy too,” he told The Malaysian Reserve (TMR).

As it is, a recession seems to be advancing fast into Malaysia and many other countries as a result of uncertainties that are caused by the Covid-19 pandemic.

“I don’t think many economies — including Malaysia — expected the rapid impact of Covid-19 on the economy.

“Many economies are still reeling from the US-China trade war and domestically on uncertainties in the political landscape. Covid-19 has got everyone off-guard,” he said.

He added that Covid-19 is also expected to pose a double whammy on Malaysia as it would also disrupt the supply chain and reduce aggregate demand, with people are losing their jobs and steady income.

In an effort to mitigate the situation, the government introduced an economic stimulus package worth RM250 billion last week, and it is expected to spur consumption as well as business development.

“The key strategy is to preserve the economic structure by ensuring that people can hold on to their jobs, while micro and small businesses do not go out of business.

“Providing cheap loans, tax breaks, postponement of taxes and lower utility bills are one form of measures,” he added.

Mahendhiran said that salary top-ups for workers in micro and small and medium enterprises (SMEs) could also be introduced to keep workers vested in helping preserve the structure of the economy.

Former Malaysian Institute of Economic Research ED Prof Emeritus Datuk Dr Zakariah Abdul Rashid said Malaysia could not escape imminent recession in tandem with the world’s economy that is headed for a fall as it enters an unprecedented crisis caused by the Covid-19.

Zakariah said the process is like an avalanche, particularly in Malaysia, which is extremely integrated with global trades.

“Is Malaysia prepared economically? If it is imminent, then the negative GDP for 2020 will have to be swallowed.

“In terms of social readiness, it is difficult too because preparation the promise of stability, over and above ideal democratic conventions. Even then, the BN government was voted in through 13 general elections (GEs).

The 14th GE saw the coalition defeated for the first time by Pakatan Rakyat. The main reason was that the majority of the electorate was determined to see the end of a kleptocratic rule and they were prepared to take their chances with the new coalition.

There can be two ways of loo- king at it — one, the voters were more determined to rid the nation of the scourge of corruption and mis- appropriation at the highest level that stability become secondary, or that they were confident that the nation had matured politically that stability is a by-product of a legiti- mately voted government that is not corrupt or abusing power.

However, the bold efforts from the voters did not see the popularly elected government complete its term and midway, through horse trading and manoeuvrings, a new “government that was not voted for” was realised.

needs not only a lot of resources, but also time,” he told TMR.

Zakariah said the government can cushion the impact by continuing to adopt packages like the Prihatin Rakyat Economic Stimulus Package, as well as appropriate fiscal and monetary policy measures.

“But as I said, it is very challenging indeed,” he added.

Many pundits and policymakers are making comparisons to 2008, the last time the US economy fell into a deep recession.

However, the situation brought on by the Covid-19 pandemic is fundamentally different from that of 2008, according to University of Rochester economics Prof Narayana Kocherlakota.

Narayana, who was also a former president of the Federal Reserve Bank of Minneapolis, said the pro- ductive capacity of the US had not changed at all in 2008 and 2009.

“Now, we have a very different situation. The government wants a pause in economic activity.

“During this pause phase when we don’t want people working and we don’t have the same level of goods and services being produced, the question is how people and corporations could continue to have enough money to stay afloat,” he said in an article published on the University of Rochester’s website.