Lockdowns in Malaysia 'will affect sentiment more than business'

Kuala Lumpur

THE two-week partial lockdown that is now in effect in the Malaysian capital Kuala Lumpur, the administrative capital Putrajaya and the states of Sabah and Selangor is not likely to have a significant impact on the economy, according to analysts at MIDF Research.

The Conditional Movement Control Order (CMCO), as the curbs are known, began on Wednesday and will last until Oct 27. The latest round of movement restrictions come amid a bitter political struggle taking place in the background.

MIDF Research said the CMCO in Klang Valley will not have a major impact on business activities as companies are still allowed to operate according to the standard operating procedures that are in place for each industry.

The research house, however, expects there will be some short-term negative sentiment following the CMCO, adding that markets will likely be volatile at the current juncture, which in turn presents a very precarious situation to investors.

"In terms of economic growth, we expect the impact of the CMCO on national economic growth in the fourth quarter of 2020 to be rather minimal. Hence, we maintain our gross domestic product (GDP) forecast of a 4.8 per cent contraction for 2020," said MIDF Research.

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Weaker consumer spending is expected with spillover effects on service industries such as retail, restaurants, hotels, travel and education.

Consumer spending, however, will be supported by more online purchases, home delivery services and online financial services including e-wallets and digital banking.

Retail Group Malaysia managing director Tan Hai Hsin, in a recent interview with The Malaysian Reserve, said over 51,000 retail stores in Malaysia are expected to shutter within the next four to five months.

This represents 15 per cent of the total industry supply, with the number expected to grow as Malaysia's loan moratorium ended last month.

Calls have been made by various parties to extend the loan moratorium for smaller businesses.

The proponents include opposition leader Anwar Ibrahim and bodies such as the National Union of Bank Employees and the Malaysian Indian Muslim Restaurant Owners Association.

At a press conference on Tuesday, Malaysian Prime Minister Muhyiddin Yassin sought to address these concerns, saying that 98 per cent of applications for an extension have already been approved.

Not all of these companies, however, will require an extension in the end.

Mr Muhyiddin said 60 per cent of the companies are given help via a reduction in their monthly loan instalments instead.This is based on the applicant's financial situation, with assistance given for loan repayments until 2021.

The current CMCO has a greater degree of flexibility than the previous rounds of movement curbs, with many economic activities being allowed to operate.

Food outlets are able to open from 6am to 10pm each day. Ride-hailing and delivery services are also allowed to operate during those hours.

Inter-state travel has been prohibited except for those who need to travel for business and have an approval letter from their companies.

The CMCO also does not affect existing arrangements under the Reciprocal Green Lane (RGL) and Periodic Commuting Arrangement (PCA) schemes involving travellers from Singapore and Malaysia.

"We have seen how serious the impact was for the economy in the previous MCO and what we need to do now is to ensure that Malaysia does not go into lockdown like before," said Mr Muhyiddin.

"Many in the economic and social sectors do not want a repeat of this. A total of RM35 billion (S$11.45 billion) has been channelled to aid the people. If a second MCO is imposed, we would need to prepare a bigger allocation that will affect the economy."

The two-week CMCO started a day after Mr Anwar, the opposition leader, was granted a meeting with the King.

Mr Anwar had said he had the backing of a parliamentary majority to form a new government, but did not produce a list of names of those supporters.

The palace had intended to meet leaders from other political parties but the meetings have since been postponed until the CMCO is over.