KUALA LUMPUR: Consumption and inflation growth will see a one-off rebound due to the low base effect caused by depressed consumption during the nationwide Movement Control Order (MCO), said the Institute for Democracy and Economic Affairs (Ideas).
According to its research manager Lau Zheng Zhou, the rebound would depend on how soon the MCO is lifted.
However, due to the ongoing uncertainty, it was more likely that consumption and inflation growth would thread lowly for the rest of the year and that might be a new normal if the situation persists.
“Private consumption growth is expected to shrink and together with the MCO impact on businesses, there will be deflationary pressure, ” he told Bernama.
Asked whether the RM250bil stimulus package announced by Prime Minister Tan Sri Muhyiddin Yassin on Friday would nurse the economy back to health, Lau said it would all depend on the Covid-19 situation as it would determine how soon business and the economy can return to normalcy.
He noted the short to medium-term impact of MCO would be on liquidity as businesses have to absorb losses for inventories that were not sold despite having to pay salaries and credit to suppliers.
This would result in business closure, with the small and medium enterprises affected more compared to large corporations as they do not have much cash reserves.
“Also, by separating ‘essential’ and ‘non-essential’ goods and services, the disruption to the supply chain can be massive as machines, component parts, raw materials and other intermediate services are important in order to produce ‘essential’ goods, ” said Lau.
He stressed that not relaxing the MCO soon would mean production for essential goods, including food, is not guaranteed.
For the period of impact within a year, Ideas expects that a global recession would be triggered.
“Even if Malaysia recovers from the Covid-19 peak, we will not be isolated from the falling global demand in trade and investment.” He said the government is expected to introduce more measures should the MCO be extended again. — Bernama
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