A double-dip recession on the horizon

Economist says current downturn likely to drag on and any growth is dependent on the country’s ability to contain the pandemic

by NUR HANANI AZMAN / pic by ARIF KARTONO

A DOUBLE-DIP recession for the country is looming, as new Covid-19 cases continue to multiply, leaving little room for economic growth and recovery.

Economist Tan Sri Dr Ramon Navaratnam said the current economic downturn is likely to drag on, while any growth momentum is very much dependent on the country’s ability to contain pandemic.

“We have been fighting Covid-19 for more than a year and our frontliners are working very hard.

“The problem is, we are living in a society that does not seem to care.

“Despite the reimplementation of the Movement Control Order (MCO) 2.0, the enforcement is not strong enough and needs to restrategise. How we manage Covid-19 and the economy recovery is strongly interlinked,” he told The Malaysian Reserve (TMR).

He said everything seems to point to a double-dip recession — when a second recession begins before the recovery from the first recession is complete.

Ramon said the GDP’s growth for 2021 is expected at 5% or lower than the government’s projection of between 6.5% and 7.5%, which is deemed unrealistic.

“One big question is, when we are getting the vaccines?” he said.

The Guardian reported that the UK economy is facing a double-dip recession, which intensified after a poor Christmas for retailers, followed by a slump in activity in January as tougher lockdown measures took effect.

“A steep slump in business activity in January puts the locked-down UK economy on course to contract sharply in the first quarter of 2021 (1Q21), meaning a double-dip recession is on the cards,” said IHS Markit Ltd chief business economist Chris Williamson.

Echoing the same sentiment, University Kuala Lumpur Business School economics lecturer Assoc Prof Dr Aimi Zulhazmi Abdul Rashid said a double-dip recession may happen if a full lockdown is implemented.

“However, the decline in the GDP growth would not be so severe even if the MCO continues. We may see a ‘U’ shape instead of a sharp ‘V’ curve, pending the current situation improves conditionally.”

“The current MCO shed about RM600 million to RM700 million daily, that is much lower than reported numbers of RM2.6 billion daily loss last year, especially during the full lockdown in 2Q20,” he told TMR.

Aimi Zulhazmi said nonetheless, the extension of MCO 2.0 to Feb 4 is already expected to shed 0.8% of the 2021 GDP.

“Indeed, it will have a profound impact especially if the current MCO is extended further.

“Then, we have to review the projection fully in view of slow recovery with rising daily cases exceeding 4,000 currently, the deployment of the vaccine and the new variants of Covid-19 reported around the world, especially in the UK, Japan and South Africa, with higher infection rates which only provide an ongoing threat to the country and the world.

“This may hamper the global economic recovery that will also be detrimental to Malaysia’s economic recovery as well,” he added.

MIDF Research economist Mazlina Abdul Rahman said the reimplementation of the MCO is expected to have some adverse impact to Malaysia’s GDP particularly in 1Q21.

“We estimated that the impact of two weeks of MCO 2.0 in all states, except Sarawak, could bring down the GDP growth by up to 1% point.

“The question whether the government’s GDP growth target of between 6.5% and 7.5% for this year is achievable or not will depend on the duration of MCO 2.0 and the rollout of vaccines in the country,” she told TMR.

Mazlina said the longer the extension of MCO 2.0, the harder it will be to maintain such a growth target.

She said everything will very much depend on the pace of economic recovery that the country could expect from 2Q21 onwards, which largely relies on the Covid-19 containment progress and how fast the vaccine reaches the mass public.

“Vaccine distribution is expected to uplift sentiment of both consumers and businesses which will eventually result in better demand and supply in the economy.

“In addition, government stimulus packages, including the latest Malaysian Economic and Rakyat’s Protection Assistance Package or Permai and low interest-rate environment, will continue to provide support to the economic recovery moving forward,” Mazlina added.

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A double-dip recession on the horizon