Tighter restrictions in Selangor and KL not favourable for economy

by LYDIA NATHAN / pic by HUSSEIN SHAHARUDDIN

RESTRICTIONS on factories and the tightened measures under the Enhanced MCO for most of Selangor and Kuala Lumpur is not a good development for any economic recovery.

OCBC Treasury Research (OCBC Treasury) said the fact that these areas make up 40% of national Gross Domestic Product (GDP) and will now be even more curtailed is most likely to dampen hopes for economic growth.

It also said this signals the country as a whole may have to wait longer to see signs of easing of restrictions.

According to the research house, initial restrictions showed some success in curbing the spread of the pandemic but case count is showing rapid uptick in recent days, with the state of Selangor recording the highest spread.

“As a result, the government has tightened the measures even further from July 3 till July 16, 2021, and residents will face home curfews, with only one household member allowed to venture out for essential purchases.”

“Notably, factories are ordered to shut as well unless they are producing food and medical items. This is a marked change from the previous measure which allows the electronics manufacturers to remain operational, offering some relief to the economy. Even though workplace clusters contribute just a quarter of cases at the national level, they comprise as much as 80% of the cases in Selangor, which prompted the necessary tightening of the restrictions,” it said.

It also added that while the Prime Minister postponed the original reopening date which was June 28, 2021, there has been no further new timeline.

“Even though the idea of mid-July reopening was floated by some officials, that may be looking less likely now. In the meantime, the economic hits might be felt more acutely, even if the latest stimulus helps in some ways,” it said.

As such OCBC Treasure said it sees an increasing chance for Bank Negara Malaysia to cut rates by 25bps on July 8, 2021.

“In its previous MPC meeting, it could still project a sanguine outlook, because any lockdown had left business activities largely unfettered. With one tighter set of restrictions now being piled on top of already tightened measures, that assumption is sadly looking less tenable by the day,” it noted.