Covid-19 resurgence could hurt Malaysia's recovery if movement curbs reimposed: report

THE resurgence in Covid-19 cases threatens Malaysia's economic recovery with the prospect of renewed movement curbs, said OCBC economist Wellian Wiranto in a May 3 note.

"Recent reports suggest that the government is considering a reimposition of targeted MCO (movement control order) in areas such as Selangor, Kuala Lumpur, Penang and Johor," he said. "Although this has been refuted by a senior minister, the evolving situation would deserve a close watch."

He noted that the vaccination rate remains low, with less than 2 per cent of the population being fully inoculated.

This is while daily new cases recently breached 3,000, hospitals in the Klang Valley area face a shortage of intensive care unit beds, and the more infectious variant from India has been reported.

"There is hope that, if implemented, any new restriction order can spare the bulk of economic activities, like in January when factories and shops could stay open even if social and religious activities were curtailed. That would limit the economic damage," said Mr Wiranto.

Yet even in that scenario, there would still be a "palpable" impact, he added, "hurting the nascent recovery in business and consumer confidence into Q2".

Against this backdrop, Malaysia's central bank is set to meet on May 6. While market expectations are that rates will not be cut, there remains "a small tail risk" of that happening, he said. At the very least, Bank Negara Malaysia is likely to start flagging downside risks more vocally, and signal that it retains space for further accommodative policy if needed, he added.