Beyond economic data


  • Economy
  • Saturday, 04 Apr 2020

Within the space of one week, four out of five members in a family lost their jobs.

They have been paid their salaries for March but were told that there is no certainty of any salaries or jobs for April. This is a tragedy that is unfolding across the country in the wake of the Covid 19 pandemic.

The family rents a tiny two-room flat in Kampung Melayu Subang, which is located on the fringes of Petaling Jaya in Selangor.

The mother and one of her sons work in a hotel that has been closed for business since mid-March. The operator of the 80-room hotel told both the mother and son that he was not sure if the hotel will resume operations any time soon and that he cannot afford to give them the April salaries.

Her daughter works in a pre-school in Kampung Melayu Subang that has been closed since mid-March while a son works in a logistics company in Sepang that is also closed for business. Both the daughter and the son have been told that there is no certainty of job in April.

The family now depends on the income of the eldest son who peddles sweets and ice cream using a motorcycle. They live in a rented flat that is so densely populated that it becomes uncomfortable during the movement control order (MCO) period.

Fortunately, the direct payouts from the government, which is due to start from this month, will help cushion some of their losses in incomes. The government’s wage subsistence scheme is of no help to them as their employers rather let them go than to take up the RM600 subsistence

The story of the family in Kampung Melayu Subang is a typical real-life situation that is happening on the ground. The collapse in supply and demand of the domestic economy will cause a huge rise in unemployment numbers compounding the decline in household incomes.

The situation that we are going through is quite similar to the economic slowdown in the mid-1980s. Then, the headline economic growth numbers were not reflective of the true situation on the ground.

In 1985, the Malaysian economy contracted by 1%, which was considered a major setback considering that the country used to enjoy growth rates of 8%. The services sector, which employs a huge section of the population, contracted by 2.8% in 1985 followed by another 11% decline in 1986.

It caused unemployment to hit 8.5%, which is the highest in the history of the country. Income per capita dropped by 1.5% in 1985 and another 10.8% in 1986.

The World Bank has predicted that Malaysia will experience growth of negative 0.1% this year on the back of the Covid-19 pandemic. Bank Negara forecasts that our economy could contract by up to 2%. In the best case scenario, Bank Negara is looking at a 0.5% growth for 2020.

The forecast contraction in the Malaysian economy is much lower compared to the 1998 recession where the Malaysian economy contracted by 7.4%.

But the impact to the man-on-the-street is likely to be huge.

Bank Negara has predicted that only the services sector will show some growth in 2020 while the other engines of the economy – the manufacturing, agriculture, mining and construction – will all decline. Based on the MCO and Bank Negara’s prediction, it’s quite obvious that the sector most affected is the manufacturing segment that is expected to decline by 8.6% this year.

In the services sector, tourism, hotels and retail segments are fast closing their operations. Hotels have stopped accepting customers since mid-March and do not know when they will resume operations. So it is easy to fathom why the likes of hotel chains under the Shangri-la and Keck Seng groups have suspended operations.

As for the manufacturing sector, companies are likely to operate with only a 50% work force. JCY Bhd, which assembles hard disk drive (HDD) announced that it has got approval to operate with only 50% of its workforce, meaning that the employees will probably have to work on alternate days.

Another sector that is already starting to dismiss workers is the oil and gas (O&G) sector. However, the O&G sector has been on a slowdown since 2014 and the impact is likely to be less.

Bank Negara has predicted that the unemployment rate would hit 4% in 2020, up from 3.4% last year. It could go higher, depending how long it will take before the economy goes back to normalcy.

In the late 1980s, the government launched Operasi Isi Penuh to bring down the unemployment rate.

The government also went on an overdrive to bring in foreign investors to set up factories beyond the states of Selangor and Penang. Kedah, Negri Sembilan and Melaka which benefitted from the push to open up factories.

This time around, the government is likely to use the gig economy as a platform to provide mass employment. Malaysia is not as competitive as other countries to attract foreign investors to set up factories to provide mass employment. However, we have the necessary infrastructure to support the gig economy.

The services sector will restructure itself.

Many pubs and restaurants in Bangsar may not resume operations. But others will take their place, given time.

On the face of it, the economy is expected to only shrink 2%, a much smaller impact compared to the 1998 or 2008 economic crisis.But the underlying impact is greater for the man-on-the-street compared to the other two recessions.In the previous recessions, banks and corporations failed.

But Bank Negara, as the lender of last resort, was there to catch banks and corporations that failed.

But the real economy does not have an employer of last resort.

It will have to be built gradually.

The views expressed are the writer’s own.

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