Analysts expect Malaysia's MCO to be extended
They are totting up the likely costs of this in the form of jobs lost and the industries that will be hit the hardest; a number of them see a downside risk to the country's 2021 GDP
Kuala Lumpur
MALAYSIA'S Movement Control Order (MCO), in effect from Wednesday for two weeks, is expected to be extended on the back of the outbreak being far worse than during the last MCO in March 2020, which triggered the first round of lockdowns in the country, analysts have said.
Darren Tay, senior Asia country risk analyst at Fitch Solutions, said: "If indeed, the government hastens to re-open the economy in two weeks and the outbreak has not been brought under control, then the problem will likely only be postponed and worsened.
"We have cited this as a key downside risk to our real GDP forecast in 2021, and with the realisation of the risk, have revised our forecast down from 11.5 per cent to 10.0 per cent."
Echoing the sentiment is OCBC Bank's economist Wellian Wiranto, who said: "The MCO may well be extended unless the number of cases starts to come down dramatically in the coming week or so.
"All in all, we see downside risks in our 2021 GDP forecast. We see the risk that the economy will shrink on both a sequential and year-on-year basis in Q1, with growth rates of -0.6 per cent quarter on quarter, seasonally adjusted, and -0.1 per cent year on year, respectively. For the year as a whole, the growth rate now is likely to be at 5.7 per cent year on year in our new baseline thinking."
Fitch Solution's Mr Tay said employment and wages are likely to once again come under intense pressure, given that government finances are already strained and close to the raised debt limit of 60 per cent of GDP.
Small and medium-sized enterprises (SMEs) are bracing for another hit. Michael Kang, president of the SME Association of Malaysia, has warned that 30-40 per cent of the country's SMEs would be "gone" if the MCO is extended by another two months. He put the losses suffered by businesses at an estimated RM2.4 billion (S$790,000) a day during last year's MCOs.
Huay Wong, a 38-year-old owner of a small printing business, said business owners were preparing for further retrenchments and salary cuts when the MCO was announced.
"There have been discussions among business owners to retrench more employees to retain their businesses."
After the announcement of the MCO on Monday, Malaysia's current Agung, Al-Sultan Abdullah of Pahang, surprised the country with a sudden proclamation of a nation-wide state of emergency, to be in force till Aug 1.
With it in effect, parliament sessions and any upcoming election will be suspended, along with plans to form an independent committee comprising government and opposition MPs to advise the King on whether the emergency can be withdrawn before Aug 1.
Mr Tay said that it is unclear how the government will exercise its emergency powers.
"There will be no curfew or martial law. The government may take over private hospitals if the public healthcare system is overwhelmed.
"None of these have any direct bearing on businesses for now, but the economy and businesses are under far greater pressure from the lockdown, especially retail, which would need to be prepared for a similar hit it took last year."
The travel industry is also expected to take a big hit as tourism businesses are again expected to lose revenue streams as a result of the ban on interstate travel, said Malaysian Association of Hotels (MAH) chief executive office Yap Lip Seng.
"Many jobs have been lost in the last year; other workers are either on a pay cut or unpaid leave. In comparison with March 2020, we are in a worse situation now and we are expecting a bigger impact," he said.
AirAsia, on the other hand, remains optimistic about the situation, as it believes that it will soon improve once MCO brings the Covid-19 crisis under control.
Riad Asmat, the chief executive of AirAsia Malaysia, said: "While we recognise it will be a tough time ahead for those of us in the travel industry, strong demand will be there for travel, coupled with the availability of vaccines in key markets where we operate."
Matin Ng, the deputy chief executive of UWC Berhad, also remains positive about the upcoming MCO.
He said: "Business wise, we are anticipating strong demand especially from semicon and life sciences segment. Despite the headwinds ahead, we remain optimistic about our performance in 2021."
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