Winding road to recovery

A probable downward revision in growth prospects notwithstanding, the National Recovery Plan brings much certainty to an economic landscape deeply affected by the pandemic

ON Wednesday, the day after the announcement of the National Recovery Plan (NRP), the local stock market hardly stirred.

The benchmark index closed up a mere two points or 0.12%, indicating that investors still remain fluid to the developments that surround the disease and also the economy.

Feeling sanguine would be appropriate when the key indicators start moving, but for now, having thresholds and targets is something that at least gives grounds for some clarity.

While the NRP is a good plan, it hinges on things that are still not within anyone’s control, such as the number of Covid-19 admissions into the intensive care unit or ICU and daily infection rates.

Minimising impact: The government has been urged to allow export-based businesses and those in crucial supply chains as well as smaller-sized companies to resume operations to avoid bigger losses.

But those in support of the plan say that it brings much certainty into an economic landscape that has been pummeled by the pandemic.

“At least now there is a guide as to when we can open up. This goes some way in helping businesses plan for things like hiring new personnel and ramping up production or taking new orders. But the key is in execution, ” says one fund manager referring to vaccination targets.

Going by the NRP, all economic sectors will be allowed to operate by the end of October 2021, provided more than 60% of the population is vaccinated with two doses. In addition, daily Covid-19 cases must be below 500.

Judging by the recent numbers, that is some way to go before this is achieved.

Reported daily Covid-19 cases this week were more than 5, 000. The good news is that it is a drop from the 9, 020 figure on May 29.

A total of 4.9 million people or about 15% of the population have received at least one vaccine dose.

Daily vaccinations have hit a new high of more than 215, 000 shots and expectations is that daily vaccination shots will increase to between 200, 000 and 250, 000 in July, and then hit 300, 000 to 400, 000 shots daily.

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Going by the NRP’s targets, 60% of the population should have their double doses of the Covid-19 vaccine by the end of October.

Observers point out that this is an ambitious target, especially should there be a delay in securing vaccines, highlighted by the hold-up in receiving the AstraZeneca vaccine.

Kenanga Research points out that in the best-case scenario, Malaysia could achieve “the 80% herd immunity target” as early as Dec 7, but lists out the steps that need to be taken.

“To make this possible, Malaysia essentially needs to secure more Covid-19 vaccine supplies and deliveries and establish more Covid-19 vaccine centres, especially in rural areas. More manpower to effectively execute the process of vaccinating the public is also needed, ” Kenanga Research points out.

Malaysia has three main vaccines approved for use, namely, Pfizer-BioNTech, Oxford-AstraZeneca and Sinovac, all of which require two doses for maximum protection.

This week, the government granted conditional approval for the emergency use of the single-dose Covid-19 vaccines manufactured by China’s CanSino Biologics and the United States drugmaker Johnson & Johnson.

A fund manager points out that the government might want to consider fully opening the economy as early as September by ensuring that more people get their first dose, an approach adopted in the United Kingdom, Germany and Singapore.

He also suggests the government look into alternative solutions to reduce the daily infection rate.

“We can’t just depend on vaccinations alone since there are issues that could delay the process such as supply disruptions and new variants.

“The UK is seeing a spike in new cases due to the delta variant, although about 80% of its adult population has received at least the first dose of the vaccine, ” he points out.

Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid says that the NRP provides a clear timeline and a guide to reopening.

“The public can then manage their expectations for what might happen between phases and take the necessary action to avoid any calamities, ” he tells StarBizWeek.

Socio-Economic Research Centre (SERC) executive director Lee Heng Guie says the NRP should incorporate the kind of assistance the government is planning to help affected industries throughout the recovery period.

“The stimulus packages we have now only focuses on the one-month lockdown. The government should also consider providing assistance for at least the next three to six months, especially for sectors that are not allowed to operate until the fourth phase, ” he says.

The government has imposed a lockdown from June 1 to June 28 to be followed by a less stringent lockdown that will be divided into phases under the NRP.

Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz says that the government is reviewing all existing measures and could introduce additional assistance to support the affected people and businesses, especially for economic sectors that would not be allowed to operate until the fourth phase.

Lower GDP growth expectations

The biggest drawback from the lockdown is its impact on the economy. Some economists estimate the one-month lockdown will shave off more than 2% of the country’s economic growth.

Afzanizam is of the view that the country’s 2021 gross domestic product (GDP) growth forecast should be revised lower.

“Putting a cap on production capacity would have a negative impact on economic activity.

“We have revised our 2021 GDP forecast to 4.2% from 5% previously, ” he says.

SERC’s Lee has maintained his forecast of 4% GDP growth for this year.

Malaysia’s central bank expects the economy to expand 6%-7.5% this year.

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On Thursday, Tengku Zafrul highlighted that the current lockdown was costing economic losses of RM1bil a day, but the amount would be reduced in the coming phases.

That is far lower than the first round of the lockdown last year, which had cost the economy RM2.4bil a day and dragged the country’s GDP for April-June 2020 to its worst level since 1998.

Not all analysts are cutting their forecasts as the current lockdown is less debilitating than the MCO 1.0 last year.

Kenanga Research expects the impact of the current lockdown to be less severe than last year, as consumers and businesses are more prepared.

The research house has maintained its GDP forecast for this year at 5%-6%, but sees the need to inject additional fiscal stimulus to aid economic recovery. “The retail sector will remain pressured in the near term, as consumer activities would be weighed by the tightened mobility restrictions and closure of non-essential stores, ” the research house says.

SERC’s Lee points out that external demand provides a buffer to the economy as domestic demand wanes.

“While strong export demand could partially offset weak domestic demand, there are some exporters affected by the lockdown, ” he explains.

Malaysia’s exports increased 63% year-on-year (y-o-y) in April to RM105.6bil, driven by manufactured goods of electrical and electronic products. These include semiconductors used in 5G technology and high-performance computing, as well as rubber products.

Afzanizam points out that while the export-oriented industries are seen to be the immediate beneficiaries in the global recovery, the momentum has been disrupted due to the recent lockdown.

He expects the economy to accelerate in 2022 as domestic demand picks up with sectors such as tourism, airlines, food and beverage, and entertainment to be the immediate beneficiaries.

“M1, which is money in circulation, and demand deposits have been growing quite steeply since the pandemic erupted in March last year. What it means is that there is a lot of cash in the hands of the public.

“Therefore, should the economy fully reopen next year, we can expect private consumption to return to a more healthy level, driving GDP growth into a higher trajectory, ” he says.

Strategic action for the economy

Industry players are suggesting that the NRP ought to include a detailed strategy for businesses.

Federation of Malaysian Manufacturers (FMM) president Tan Sri Soh Thian Lai says businesses need help on how to plan their survival strategy, as the prolonged period of non-operation has severely impacted their viability.

“Some would have to make hard and painful decisions if there is no clear indication on when they would be allowed to resume operations.

“FMM has called on the government to allow export-based businesses and those in crucial supply chains as well as smaller sized companies to resume operations, ” he says.

FMM points out that under the current lockdown, almost 80% of businesses fall into the non-essential category and are therefore not allowed to operate.

And for the businesses that are allowed to operate, only a 60% operational capacity is allowed.

To expedite vaccination among the private sector, the government has also announced a public-private partnership (PPP) immunisation initiative dubbed the Public-Private Partnership Industrial Covid-19 Immunisation Programme (Pikas).

Under the programme, which has been tasked to the International Trade and Industry Ministry (Miti), the government will provide the vaccines but participating companies are required to fully bear administration costs for their employees.

Many quarters are now highlighting the importance of vaccination as the key to exit the Covid-19 crisis.

However, it can’t be the only strategy as there are also other risks that can slow down the vaccination process such as logistics, hiccups in supply and new variants.

The government should also consider looking at other alternatives to achieve its NRP timeline as a longer lockdown can be damaging to the economy.

It will be a winding road to recovery but the NRP roadmap would guide the economy in the right direction.

As the country raises its hope that the targets of the NRP are met, yesterday’s Covid-19 cases sent a grim reminder of the challenges ahead. With 6, 440 new cases, it still remains above the 4, 000-threshold that is essential to start the recovery plan.