WHILE the international drama of coronavirus disease (Covid-19) is playing out, local politics is not lacking in action.
Out of the blue, a new Prime Minister has emerged, and Malaysians are thrown into a mixed state of expectations.
Stability is key to confidence especially in the economic and investment scene.
The nation must stand united as it had amidst the challenging year-long trade war.
Malaysia should be focusing on fighting the slowdown first brought about by the trade war and now, this epidemic; a political upheaval is the last thing that we need.
Political upheavals disrupt economic and financial fundamentals, thus potentially weakening our ability to deal with external headwinds, according to Socio Economic Research Center executive director Lee Heng Guie.
Recent sharp falls on the Dow Jones and continued negative yield spreads as investors rush for long term US bonds, have elevated the risk of a global recession.
An uncontrollable spread of the coronavirus would cloud the global economy.
Malaysia’s major trading partner, China, may experience a decline of 6% in first quarter growth, which would lower its year-on-year growth to 3%, said Pacific Investment Management Co.
The government chosen must be stable and lasting, as policy risk is a real issue here, said Fortress Capital CEO Thomas Yong.
Any unexpected changes to government regulations and policies can derail important decisions such as the RM20bil stimulus package aimed at helping to offset the coronavirus.
Malaysia’s short-term political risk score has been revised down to 69.8 from 72.5 by Fitch Solutions, reflecting risks to social stability, policy making and continuity.
Recent sudden and shocking political moves have rocked Malaysia’s reform agenda which had earned praise from the International Monetary Fund on the progress it was making.
Since the start of the local political tussle, the FTSE Bursa Malaysia KLCI has lost 48.56 points, or 3.17%, over a one-week period.
More value is emerging. “It is important to look beyond any short term volatility and hold onto the longer term strategy, ’’ said Areca Capital CEO Danny Wong.
With the number of epidemic cases growing, and springing up around the world, Malaysians cannot predict when we may come under another round of virus attack.
The United States and Australia have reported the first deaths from the coronavirus while Washington State officials are investigating a health facility for the elderly following two infections.
From nearly zero just over a week ago, known infections in Italy have now surpassed 1,000.
South Korea, with more than 3,000 infections, has the most cases outside of China.
Heavy stock losses on Wall Street will potentially impact consumer spending, which has been holding up the US economy even during testing times in the trade fight with China.
Some are warning that a “more severe pandemic could lead to a more prolonged disruption and a US recession.”
So far, the World Health Organisation has placed the coronavirus situation on the “highest level of alert.”
There is the possibility of zero earnings growth for US companies, if the virus continues to spread, as Goldman Sachs sees that production shutdown in China would significantly affect the supply chains of S&P 500 companies.
Lockdowns are not just occurring in China but in Italy, Iran and the tourist spot of Hokkaido in Japan, with South Korea on high alert.
Even before the onset of the coronavirus, Italy was already considered to be on the verge of recession, as its economy declined by 0.3% in the last quarter of 2019.
Major local and international events, which can generate spin-off economic activities, have been cancelled while upcoming ones face a similar fate.
The Federal funds futures market indicates a more than 70% chance of a rate cut at the Federal Reserve’s policy meeting in March.
Goldman Sachs expects the Fed to cut rates three times from March to June.
The United States and eurozone have already eased their monetary policies to cope with stress emerging from trade tensions while China, at the centre of the epidemic, has stepped up further stimulus.
Fiscal stimulus could be complimented to monetary easing which has already taken place in Asean countries.
These are timely responses to support the economies; we are not expecting a global recession, said RHB Research Institute chief Asean economist Peck Boon Soon.
There are enough warnings on the lack of ammunition for further cuts in rates which are already very low.
Moreover, the debilitating effects of a widespread lockdown of some large cities in China may not be cured with monetary management.
Areas in lockdown are just not generating economic activities, income and money flows. There is no respite from the uncertainty earlier caused by the trade war.
Columnist Yap Leng Kuen hopes the current situation is a short, temporary bite. The views expressed here are the writer’s own.
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