Bleak economy, layoffs if Covid-19 problem persists past June

Close to 500 Covid-19 cases have been reported in Malaysia as of March 15.

PETALING JAYA: Economists have warned of a global recession kicking in if the Covid-19 pandemic lasts beyond June, causing the government, companies and households to go deeper into debt.

Economist Mohamad Nazari Ismail said the Covid-19 pandemic would certainly cause a slowdown in the economy, with retrenchments and layoffs being inevitable in sectors that have been hit the hardest, such as tourism, airlines and related industries.

“The government cannot do much to help the situation beyond borrowing more money to pay for the economic stimulus package,” he said referring to Malaysia’s RM20 billion economic stimulus package announced in late February.

However, higher government debt would create additional problems for tax payers in the long term, he said.

Public sector total debt plus government guarantees now stand at more than RM1 trillion.

“No wonder the government is thinking of reintroducing the GST in order to solve its financial problems,” he said, referring to the abolished goods and services tax.

Prime Minister Muhyiddin Yassin had said last week that the government would review the need for GST which was scrapped after Pakatan Harapan took power in May 2018.

“But that will be bad news for the rakyat who are already suffering from the effects of Covid-19. Our main problem is that many firms and households are in debt,” he said.

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Total household debt also amounted to more than RM1.1 trillion.

“These indebted people and organisations are the most vulnerable during an economic slowdown,” said Nazari.

He said Malaysia must rethink its growth model, and not be overly reliant on debt.

“Using debt in order to pursue fast economic growth is not a sustainable model,” he said. When the economy slows down, most banks would still insist on the debt being honoured.

“That is when highly indebted firms and individuals realise their mistakes. They will be the ones in danger of going bankrupt. Unfortunately in many cases it is already too late.”

Global recession

Yeah Kim Leng, a professor of economics at Sunway University said the economy would hit a flat line if Covid-19 lasts until the end of April, and turn negative if it goes beyond June.

Yeoh, former group chief economist at RAM Holdings, told FMT that the manufacturing sector may suffer disruptions in the supply chain as more countries lock down their boundaries to combat the pandemic.

Malaysian factories may not be able to get immediate components or raw materials from other countries, he added.

While tourism will be worst hit, public events such as exhibitions and concerts will also come to a halt.

Yeoh urged the government to ensure that supermarkets are well stocked with food. One way would be to provide adequate aid to farmers and the poultry industry.

The government must also ensure the country has adequate medical equipment and supplies.

“It is also important for the public to receive correct information so that they do not resort to hoarding,” he said.

Muhyiddin recently said that Malaysia’s gross domestic product may decrease by 0.8% to 1.2%, a decrease of RM10 billion to RM17 billion.

GDP to drop to 2-3%

Business consultant Hoo Ke Ping predicts that Malaysia’s GDP growth may slow to 2%-3% instead of the revised estimate of 3.2%-4.2%.

He said the UK and Europe are badly hit due to Covid-19 while China’s economy had hit rock bottom after its lockdown in Wuhan, the centre of the coronavirus epidemic.

Chinese, Singapore, India and Indonesian tourists may not visit Malaysia causing a drop of almost RM25 billion in cash earnings.

With crude oil prices at US$35-36 per barrel, Malaysia can expect a loss of RM10 billion in oil revenues.

He said if the US issued a general lockdown to contain Covid-19, Malaysia’s electrical and electronics earnings would be affected.

China may not immediately buy timber, durian, furniture and birds nest from Malaysia, a potential loss of between RM5 billion and RM7 billion.

He said it would be difficult to know how many local companies would be able to withstand the economic slowdown.