With Covid-19 still not tamed, we look at its impact on our economy.
With the deployment of the current FMCO lockdown, Malaysians everywhere have been pulling their hairs out living with another round of staying at home with stricter conditions set by law.
The COVID-19 epidemic is a health, socioeconomic, and humanitarian disaster of historic magnitude and scope. The situation in Malaysia is made worse by the fact that the ruling government only took office in early March 2020 and immediately had to grapple with a massive debt crisis, financial limits, falling oil prices, and the global shutdown’s knock-on effects on commerce and tourism. Covid-19 cases have skyrocketed, which led to endless layers of suffering for everyone in the country.
The economic sector is also a muddled mess. The Malaysian economy has been beset by the middle-income trap, a sizeable migrant population, and a lack of technological innovation and upgrading. While these issues have dominated macroeconomic policy discourse, other concerns have emerged, including the availability of cheap and accessible healthcare, affordable housing, and excessive family debt.
As perplexing as these concerns are, the continuing severity of Covid-19 has only exacerbated them. The pandemic has undoubtedly brought economic uncertainty and a lack of direction. This alarming situation has gotten a lot of attention. There has been a strain on personal finance in Malaysia, and money management has become the hot topic of everyone trying to put food on the table.
Let’s take a look at just some of the factors comprising Malaysia’s current financial, economic, and enterprise situations.
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COVID-19 Infections In Manufacturing Companies Continue To Wreak Havoc On Delivery Schedules
After thousands of its workers tested positive for the coronavirus, Malaysia’s Top Glove Corporation – a major global supplier of rubber gloves – stated in November 2020 that it would have to close several of its 36 glove facilities for a few weeks. This is just one example of industrial turmoil seen earlier in the crisis.
Such outbreaks are still common, therefore PPE buyers should keep their options open, and their supply chains varied by purchasing in bulk or ahead of time if possible. Refilled national and local stockpiles of gloves and other emergency supplies are still needed.
The manufacturing sector is a delicate backbone for many other industries including the very infrastructure of Malaysian society, and industry players are working overtime to set things straight as we continue on into the next phase of the global health crisis.
Flattish Returns In 2021
We just witnessed a controversial early batch distribution process of the AstraZeneca vaccine here in Malaysia. The nation is rolling out its massive vaccination operations across the country, slowly but surely. Citizens are exhausted, anxious, and frustrated by the situation at hand.
From a global standpoint, many people saw the Pfizer vaccine update on November 9 2020 as the start of the end of the epidemic. It caused a massive surge in global equities markets, forced the biggest sell-off in 10 years according to the US Treasury, and was one of the largest single-day in-out cyclical rotations of healthcare and technological leaders ever seen in history.
However, countries like Malaysia and India are seeing alarming spikes in the cases among their population, while others are seeing steady declines. It remains to be seen how mass vaccination will aid in the eventual regression of infections.
Nonetheless, markets may anticipate positive vaccination news flows as the key to boosting business and consumer confidence in 2021. This will cause pricing in the knock-on impacts of “back-to-normal” trades on domestic demand and corporate profitability.
Vaccination in high-income countries may clear the way for the resumption of international flights, boosting travel and spending. More viable vaccine candidates could boost global vaccination capacity, allowing more emerging countries to benefit. The stage is prepared for a party, with plenty of liquidity and fundamentally low-interest rates – at least until the music stops.
FBM KLCI is predicted to yield flat returns in 2021, but a wide range of winners as the global rollout of WHO-approved Covid-19 vaccinations gradually reintroduces consumption and allows for the progressive reopening of borders. Economic and business recovery will be priced into market valuations through 2022, underpinned by globally dovish policies (with no overtures of policy rate hikes throughout the year).
As the current wave of Covid-19 countrywide infections continues to damage the economy and, notably, small and medium firms, there will be less market volatility, but the market’s recovery will be patchy, mostly mirroring the spotty K-shaped economic recovery.
The slow economic recovery will coincide with the slow mass distribution of Covid-19 vaccines. Challenges to the federal government’s revenue and budgetary imbalance, which slow the deployment of megaprojects, are factored into our forecast for a possible moderate market consolidation by mid-2021. Market sentiment may become cautious again in 2H2021, as investors price in the possibility of a hasty general election.
The Tourism Sector In Malaysia
It is widely recognised that Malaysia’s tourism industry contributes significantly to economic growth by encouraging foreign expenditure on goods and services in the country. If the number of tourists continues to decline, some tourism businesses will be compelled to close due to unsustainable losses and the inability to pay employees’ salaries.
During the MCO, other non-essential sectors were also ordered to shut down their operations. For example, to control the spread of COVID-19 in Malaysia, economic activities in the manufacturing and construction sectors were halted. That is why the government’s financial assistance to the afflicted sectors is critical. With the return of MCO 3.0 and the FMCO, this trend unfortunately re-emerges.
Broad-based travel restrictions and travel risk aversion are projected to damage tourism-related sectors, while production interruptions in the global supply chain would weigh on the manufacturing sector and exports.
While the introduction and future extension of the Movement Control Order (MCO) is vital, it will decrease economic activity as non-essential service providers suspend operations and manufacturing businesses’ operating capacity is reduced.
Mr Fernandes’s empire’s heart, AirAsia, is having its problems, and the airline’s stock price has dropped by 65% in 2020. The corporation has exited Japan, and its Indian airline, a joint venture with the Tata Group, has been re-examined following accusations that the Malaysian corporation had stopped paying it. Mr Fernandes refuted the allegation. For the first time, the crisis has compelled AirAsia to seek financial assistance from the Malaysian government.
In Closing
As it stands, Malaysians are seeing Covid cases continue despite the tighter restrictions of the FMCO. As a nation, we can do nothing but wait for things to get better while doing our part as best as possible, in particular helping out with the white flag movement. As individuals, it’s imperative that we continue to closely monitor our personal money management as well as our mental and physical wellbeing as best as we can.
What other trends do you foresee happening? Share with us your thoughts in the comments.
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