Governments MCO Relaxation to Spur Economic Growth: Economists

KUALA LUMPUR: The government’s decision to relax the restriction will be good for the economy as it allows more sectors to open and promote business activities throughout the country.

The government had on Thursday decided to extend the Movement Control Order (MCO) for another two weeks but not for the entire country.

The extension is from February 19 to March 4 and affected only Kuala Lumpur, Selangor, Penang and Johor.

Putra Business School business development manager Associate Professor Dr Ahmed Razman Abdul Latiff said a less strict MCO will certainly help to boost domestic economic recovery.

“I expect the daily positive cases will be returning back to three digits by March and will be even lower once Phase II vaccination started in April.

“Therefore I do not think there will be another extension of MCO for these two states after March 4, 2021,” he told the New Straits Times.

He said another wave of infection is unlikely as more people had been practising physical distancing and health-related standard operating procedures (SOPs) for almost a year and the cases of non-compliance were at a low rate.

“The rollout of vaccine programme will further reduce the infectivity cases and restore people and businesses confidence to resume normal activity,” he said.

Ahmed Razman cautioned that another extension beyond March 4, will delay the economic recovery for these four states and the country as a whole.

Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said economic activities would be less stricter for states that are under Conditional Movement Control Order.

“Nonetheless, constraint on economic activities would mean that gross domestic product (GDP) will continue to remain tepid in the first quarter (Q1) of 2021.

“We are uncertain about the duration of MCO whether it will continue or otherwise. What we know these four states represents a huge chunk of the Malaysian economy. Therefore, the 1Q 2021 GDP could see another round of year-on-year contraction,” he added.

Sunway University Business School economics Professor Dr Yeah Kim Leng said the relaxation would be a more targeted approach to movement restrictions focusing on areas where Covid-19 clusters had been identified.

“This is a more sensible as well less damaging approach both economically and psychologically given the year-long pandemic,” he told NST.

Yeah said businesses and consumers in areas where infection cases were low can continue their daily activities although at a more restrained level, enabling a better balance between lives and likelihood.

“As in other badly hit countries, lock-downs have become more targeted or localised, imposed in areas where cases are found, thereby minimising unnecessary damage to the economy, businesses and families,” he said.

Given the higher population density and economic activity levels, Yeah said a prolonged state of travel and activity restrictions in the major cities and states will dampen the country’s economic recovery more severely.

“More businesses and households will be put under stress for a longer period with a likely increase in long term damage to small businesses and low income households,” he added.

CGS-CIMB analysts Ivg Ng and Nagulan Ravi said the successful execution of the vaccination programme will be positive as the plan to start the vaccination in February is in line with earlier guidance from the government.

They said the removal of MCO in all but four states is likely to be viewed positively by the market as this reduces corporate earnings risk concerns.

“We are of the view that the market will re-rate and shift to stocks that will benefit from the economic recovery should the execution of the national Covid-19 vaccination programme progress smoothly and according to the timeline spelt out by the government.”

The research firm said there could be potential hiccups along the way including the vaccine doses may not be sufficient to meet the tight deadline.

“The government has so far only provided a detailed timeline on the deliveries of Pfizer-Biotech vaccines but not for the other four vaccine types.

On Malaysia’s Pfizer vaccine order, the first batch of 1.0 million doses (for 500,000 people, at two doses each) is slated to arrive by end-February, with another 1.7 million doses in the second quarter, 5.8 million doses in the third quarter and 4.3 million doses in the fourth quarter this year.

“We believe the successful execution of the National Covid-19 Immunisation Programme will be key to lifting market sentiment.

“We keep our KLCI target of 1,759 (12-month forward price-earnings ratio of 16.2 times),” they added.


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