The State of the Nation: Restricted mobility raises risk of double-dip recession
THE risk of a double-dip recession has grown following the implementation of a Conditional Movement Control Order (CMCO) in Kuala Lumpur, Putrajaya, Selangor and Sabah, which collectively contribute about 47% to Malaysia’s GDP. For clarity, a double-dip recession is one that is followed by a short-lived recovery and then followed by another recession.
Nevertheless, economists say that this time around, the lockdowns imposed by the government are more targeted and, hence, unlikely to have such a severe impact on economic activity as the MCO in the first half of the year.
Google’s Covid-19 Community Mobility Report, which tracks movement activity, shows restricted mobility among those living in KL, Selangor and Sabah since the CMCO was imposed last week. Simply put, people are spending more time at home, which does not bode well for consumer spending, a major engine of economic growth.
How likely is a double-dip recession?
Dr Yeah Kim Leng, professor of economics at Sunway University Business School, says the third wave of Covid-19 infections in Malaysia has increased the risk of a double-dip recession, even though the lockdowns are mitigated by “localised” rather than the nationwide movement restrictions imposed during the first two waves. “It is more likely that the economy will experience a slightly weaker recovery with the growth momentum being dependent on the ability to contain the third wave and minimise disruptions to economic activities,” he tells The Edge.
“Another source of double-dip risk facing the Malaysian economy emanates from a similar virus resurgence and reimposition of lockdowns in European and US cities. The ensuing demand shock will dampen Malaysia’s export recovery, making it more dependent on the revival of the Chinese economy, which is likely to be the first to emerge from the pandemic crisis.”
Lee Heng Guie, executive director at the Associated Chinese Chambers of Commerce and Industry of Malaysia’s Socio-Economic Research Centre, concurs. “An occurrence of a third wave of infections is expected to temper the anticipated anaemic recovery in 4Q2020 and beyond. The targeted approach of the CMCO and Enhanced MCO (EMCO) in high infection areas is a refined balance to save public health and ensure the continued running of the economy and businesses.
“Businesses are not in a position to absorb the economic and financial impact if there is another round of total lockdown domestically, and also lockdowns in Malaysia’s major trading partners. China’s continued economic recovery is the only silver lining to a global recovery.”
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid says it is “extremely uncertain” how quickly the economy can recover, as the pandemic has severely hurt the tourism and aviation sectors. “These two sectors are very important due to their linkages to the other parts of the domestic economy such as food and beverage (F&B), entertainment and transport.
“What the pandemic does to the economy is that it could paralyse production activities as human mobility becomes so restrictive and only certain industries are allowed to be fully operational.”
A closer look at the mobility data
Google users who have opted to turn on the location history on their account would likely have a record of their movement activity over the last 10 months, as part of Google’s Covid-19 Community Mobility Report.
Compiled by Google using the latest available data up to Oct 18, these reports — which chart movement trends over time by geography — show how visits and lengths of stay at different places change compared with a baseline. The baseline here refers to the median value for the corresponding day of the week during the five-week period of Jan 3 to Feb 6.
For example in Sabah, which has been under the CMCO since Oct 13, the retail and recreation category that tracks mobility trends for places such as restaurants, cafés, shopping centres, theme parks, museums, libraries and cinemas, saw a decline of 71% on Oct 18 compared with the baseline period. This is against a decline of 22% on Sept 25, the day before the Sabah state election.
Sabahans are also spending more time at home during the CMCO, as the residential category that tracks mobility changes for places of residence against the baseline shows that the time spent at home had increased by 28% on Oct 18, compared with 8% on Sept 25.
Small and Medium Enterprises Association of Sabah (SME Sabah) founding president Foo Ngee Kee says the situation in the state is currently “very much worse” than the MCO in March. This has made conditions unfavourable for SMEs in the state.
“Now, we are seeing close to 600 cases daily in Sabah alone, which is more than the first few months combined. Given this, people are avoiding leaving their homes and have decided to cook at home. Naturally, this hits the SMEs involved in the F&B business,” he adds.
“Tourism is also badly hit as we have seen hotels and even a popular seafood restaurant, which was a favourite among tourists from China, close down. Travel agents who depended on income from Chinese tourists are also severely impacted by this.”
The situation is similar in Selangor which, after Sabah, has seen the highest number of Covid-19 cases in the country. The state has been under the CMCO since Oct 14, and the mobility data on Oct 18 for the retail and recreation category showed a decline of 49% against the baseline, compared with a decline of just 17% a month ago.
Meanwhile, the workplaces category that measures the number of visits at places of work saw a decline of 23% on Oct 16 compared with the baseline, while the number of hours spent at places of residence increased 23%. This comes as more offices implement work-from-home policies as part of their business continuity planning.
In KL, the retail and recreation category saw the number of visits reduce by 57% on Oct 18 compared with the baseline. Pictures of empty malls have been circulating on social media following a wave of Covid-19 cases recorded among tenants of several prominent malls in the Klang Valley.
SME Association of Malaysia president Datuk Michael Kang says that unlike the previous MCO — which had impacted most industries — this time around, the retailers are bearing most of the brunt. “Businesses, especially those that operate in malls, are most affected since consumers are keeping away from malls right now due to the reports of Covid-19 cases in malls. We hope the government can help this group of people as they still have to pay rents and salaries, but with zero sales coming in.”
Malaysia Shopping Malls Association (PPK) president Tan Sri Teo Chiang Kok says footfall at malls were gradually improving in August, reaching 75% of pre-MCO levels, but it has since plunged to 10% or less. “Now, the better-performing malls can only achieve an estimated 10% to 20% of pre-MCO levels. More steady footfall and shopping will only start to increase again when confidence returns and the CMCO has been completely lifted, as this has totally restricted and discouraged people from going out.
“Overall, revenue for the industry has decreased by a minimum 30% to 50%, due to increased operational costs, sanitation, temperature monitoring at entrances, purchase of related equipment, rental rebates and vacancies, which is expected to not improve until at least the end of 2021, barring any unexpected developments.”
At press time, Malaysia had reported 24,514 cases of Covid-19 infections, with 214 deaths. It is yet to be seen whether an EMCO, which would further derail mobility trends, will be implemented.
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