KUALA LUMPUR, Dec 8 — When people worldwide welcomed the new year 2020, few envisioned that a deadly contagious disease would sweep across the globe, threatening health, wrecking economies, and creating a need for extraordinary policy measures and pandemic actions that caused governments to walk a tightrope towards recovery.
Triggering what is deemed the worst economic crisis since the 1930s Great Depression, the COVID-19 pandemic drove the world economy into a severe contraction, sent stock markets crashing, pushed unemployment to catastrophic levels last seen in the 1900s, and caused thousands of businesses to close their doors for good.
As for impacts on regular folks, lockdowns or movement restriction measures that took place as early as March stirred panic buying across the world, with people rushing to supermarkets to stock up essential items such as toilet paper and canned food, leaving the grocery shelves empty like a scene from a disaster movie.
This is definitely not the Vision 2020 that we all looked forward to.
Impact on world’s two largest economies
When China first detected the COVID-19 virus in late December 2019, strict quarantine measures were imposed in several provinces, especially Wuhan, the ground zero of the pandemic, on Jan 23 to curb the spread of the virus.
The coronavirus-induced crisis had led China’s Gross Domestic Product (GDP) to shrink 6.8 per cent year-on-year (y-o-y) in the first quarter (Q1) of 2020, recording the first contraction since 1992. Millions of people also lost their jobs due to the outbreak.
To revive economic growth, Chinese Premier Li Keqiang announced in May that the government would inject a fiscal stimulus package worth 3.6 trillion yuan (RM2.24 trillion). And the measures seemed to have worked.
Being the country that tops the global COVID-19 cases list with its daily cases peaking at over 15,000 on Feb 12, China’s economy eventually roared back into positive territory with a growth of 3.2 per cent in the second quarter (Q2) and 4.9 per cent in the third quarter (Q3).
However, the Chinese government decided not to set its 2020 GDP growth target due to the uncertainty amid the pandemic, and this marked the first time in history that China dropped its GDP goal since records began in 1990.
At the time of this report, China’s total COVID-19 cases amounted to 93,562 cases with 4,746 deaths reported.
On the other side of the world, the United States (US), however, is less fortunate compared with the Asia-based economic powerhouse, as the world’s largest economy is still fighting against the surging COVID-19 cases today.
The US is in the unenviable position of being the country with the most COVID-19 cases and deaths, with more than 14.7 million cases confirmed and over 286,000 lives lost as a result of the virus.
Its GDP shrank five per cent in Q1 and plummeted 31.4 per cent in Q2, recording the most severe contraction since 1947, while its unemployment rate also surged to 14.7 per cent in April from 10.3 per cent in March, posting the largest over-the-month increase since 1948.
After the government injected more than US$3 trillion (RM12.19 trillion) worth of COVID-19 relief to support consumer spending, its GDP finally staged a strong rebound by surging 33.1 per cent in Q3.
The International Monetary Fund (IMF), in its latest World Economic Outlook report released in October, expected the US economy to contract 4.3 per cent this year and post economic growth of 3.1 per cent in 2021.
The IMF also projected a 4.4 per cent contraction this year in global GDP, which is expected to rebound with 5.2 per cent growth next year.
Malaysia’s Q2 GDP worst since Asian Financial Crisis
Back home, since Malaysia reported its first three confirmed COVID-19 cases on Jan 25, 2020, the positive cases have swollen to over 72,000.
Being part of the global supply chain, Malaysia is inevitably hit by the impact of the virus when drastic lockdown measures such as border closure, travel ban, quarantines and restriction on business operating hours were implemented globally.
When Malaysia implemented a 14-day nationwide Movement Control Order (MCO) from March 18, a wide range of restrictions were implemented, including general prohibition of mass movements and gatherings across the country, and closure of business premises, except for supermarkets, public markets, grocery stores and convenience stores selling everyday necessities.
The movement restriction orders adversely impacted the economy, resulting in a slower economic growth of 0.7 per cent in Q1 2020 against 4.5 per cent a year earlier.
The economy was hit the hardest in Q2 when the GDP shrank 17.1 per cent (against 4.9 per cent growth in Q2 2019), posting the worst performance since the Asian financial crisis in 1998 when its Q4 GDP contracted 11.2 per cent.
Apart from the GDP performance, the headline IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI), an indicator of economic health for the manufacturing sector, also plunged to a record low of 31.3 in April from 48.4 in March, as sentiment was pummelled by COVID-19 headwinds, a trend seen across ASEAN and emerging market economies.
Meanwhile, more than 30,000 small and medium enterprises (SMEs) have closed shop since the MCO was implemented in March.
The labour market was also not spared from the outbreak. Data from the Department of Statistics Malaysia (DoSM) showed the unemployment rate in the country peaked at 5.3 per cent in May 2020 from five per cent in April 2020 as the number of unemployed persons rose by 47,300 to 826,100 individuals.
On vehicle sales, Malaysian Automotive Association (MAA) said only 141 vehicles were sold in April 2020, registering a huge drop of 22,337 units, or a 99.37 per cent, compared with 22,478 units sold in March 2020.
Due to the global border closures and travel restrictions, the COVID-19 also had a detrimental impact on exports, particularly in Q2 2020.
“Exports for Q2 slumped 14.3 per cent y-o-y to RM210.3 billion.
“In April alone, exports dipped 23.8 per cent y-o-y to RM64.9 billion, registering the largest decline since September 2009 during the global financial crisis in 2009, while the decline in May also widened 25.5 per cent y-o-y to RM62.7 billion,” said DoSM in its monthly report.
Among first in the region to launch COVID-19 stimulus package
There is a saying that goes “Unprecedented times call for unprecedented solutions.”
Noticing the surge in COVID-19 cases in Malaysia since Jan 25, the then-interim prime minister Tun Dr Mahathir Mohamad announced the 2020 Economic Stimulus Package worth RM20 billion, themed “Strengthening Confidence, Stimulating Growth, Protecting Jobs”, to ensure the COVID-19 risks to the economy could be addressed effectively.
At that time, Malaysia was among the first countries in the region to roll out a COVID-19 stimulus package.
As the confirmed cases kept snowballing in the country, Prime Minister Tan Sri Muhyiddin Yassin announced unprecedented measures to mitigate the economic impact from the coronavirus — a total of four stimulus packages worth a combined value of RM305 billion, which represented 20.7 per cent of the GDP.
The stimulus packages were the RM250 billion Prihatin Rakyat Economic Stimulus Package, the RM10 billion Additional Prihatin SME Economic Stimulus Package (PRIHATIN SME PLUS), the RM35 billion National Economic Recovery Plan (PENJANA) and the RM10 billion Prihatin Supplementary Initiative Package (KITA PRIHATIN).
The government also uses the 6R approach — namely Resolve, Resilience, Restart, Recovery, Revitalise and Reform — to fight the COVID-19 pandemic and recover from its socio-economic fallout.
In terms of monetary measures, Bank Negara Malaysia has made a cumulative 125 basis-point cut in the Overnight Policy Rate (OPR) thus far this year, bringing the interest rate to a record low of 1.75 per cent.
A six-month blanket loan repayment moratorium ended Sept 30 was also introduced to mitigate the impact of the outbreak.
All the containment measures implemented would inevitably hit the country’s fiscal position, putting Malaysia in a situation where its fiscal deficit is expected to rise to between 5.8 per cent and six per cent of GDP in 2020, up from 3.4 per cent in 2019.
Parliament had, in August, approved to raise the statutory debt ceiling to 60 per cent of GDP from 55 per cent previously to temporarily ease the impact of the pandemic on businesses.
Malaysia last lifted the debt limit in the 2008-2009 global financial crisis, when the country increased the limit to 45 per cent from 40 per cent in June 2008, and then to 55 per cent in July 2009.
According to Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz, the country’s debt-to-GDP ratio is anticipated to reach around 56 per cent at year-end.
To ensure Malaysia is capable of recovering from the outbreak, a mammoth Budget 2021 worth RM322.5 billion, the largest in the country’s history, was tabled in Parliament on Nov 6.
Green shoots in economy visible since June
When the Conditional MCO (CMCO) and Recovery MCO (RMCO) were introduced in May and June, respectively, businesses were allowed to resume their operations, and this is viewed as a boon for the country’s economic recovery.
IHS Markit reported that the country’s Manufacturing Purchasing Managers’ Index rose sharply to 45.6 in May 2020, and moved further upwards to 51.0 in June 2020, its highest since September 2018, indicating the economic downturn has bottomed out.
Export growth also recovered since June 2020, when exports rebounded 8.8 percent y-o-y to RM82.9 billion, and it has continued to stay in positive territory until October 2020 (up 0.2 percent y-o-y).
The country’s GDP shrank at a slower pace of 2.7 percent y-o-y in Q3 compared with a 17.1 percent contraction in Q2 2020, signaling a recovery in the economy.
“The country’s GDP showed signs of recovery from negative 28.6 percent in April 2020 to negative 3.2 percent in June.
“We are seeing a V-shape recovery starting May 2020; (hence) June is a good barometer to show the economy is improving,” Tengku Zafrul told Bernama in an interview in August.
BNM had earlier projected Malaysia’s GDP growth to range between -5.5 and -3.5 percent in 2020.
On the outlook for 2021, the finance minister told Bernama in a separate interview on Nov 28 that he was optimistic Malaysia’s 2021 GDP would grow within the range of 6.5 percent to 7.5 percent as projected by the government.
He said the forecast was based on various assumptions, such as the pick-up in economic demand, as well as the COVID-19 vaccine that was widely expected to be available in Q1 2021, which would have a positive spillover effect on Malaysia.