In case you missed it, Malaysian Prime Minister Muhyiddin Yassin officially announced a further extension of Malaysia’s movement control order (MCO). The Order is currently until 12 May 2020, but the premier did hint in his official speech on 23 April 2020 that this date is, unsurprisingly, dependent on whether the COVID-19 curve continues to flatten.
While restricting people’s movement is obviously necessary to combat this pandemic, there is another rising concern: the formidable reality of COVID-19’s impact on people’s livelihoods as well as the economy. Just ask around and it’s likely that you’ll hear things such as:
“We might get a pay cut due to the Order…”
“I’ve not got my salary since the start of the MCO.”
“The company just told me they can’t pay my commission during this difficult times!?”
“If this goes on, I might have to consider laying off some employees, or even closing down the company.”
It is no secret. COVID-19 is no longer just a health concern – it is also now an economic dilemma. And a global one at that too.
Here is how COVID-19 is impacting economies around the world – a foreshadow of what might come if the MCO keeps getting extensions:
According to CNBC, approximately 5 million people in China lost their jobs in the first two months of this year, due to the outbreak. The National Bureau of Statistics comments that China’s official urban unemployment rate jumped in February 2020 to 6.2% – which is the highest on record. That is up from 5.3% in January and 5.2% in December.
To add, by the start of March 2020, the officially reported resumption of work rate in China was about 60% for small and medium-sized enterprises, and significantly higher for larger companies. This is proof that the reopening of a business typically does not mean it is operating at the same capacity as it normally would.
CNA reports that a record 26 million Americans sought unemployment benefits since late March 2020. This is a sign that all the jobs created during the longest employment boom in U.S. history were wiped out in about a month as COVID-19 peaks in the nation.
“Even if the economy starts to re-open in mid-May, more than 20 million Americans will have lost their job with the economy likely having contracted around 13% peak-to-trough, more than three times deeper than the global financial crisis,” shares James Knightley, chief international economist at ING Financial Markets, in Time.
One of the Bank of England’s top policymakers, Jan Vlieghe, forecasts in The Guardian that the UK could be suffering its worst economic shock in several hundred years. “Based on the early indicators, and based on the experience in other countries that were hit somewhat earlier than the UK, it seems that we are experiencing an economic contraction that is faster and deeper than anything we have seen in the past century, or possibly several centuries.”
He explains that the lockdown has created both a supply shock (because people can’t work) as well as a demand shock (because normal consumption patterns are disrupted by the movement restriction). This economic shock is “highly asymmetric,” with some sectors affected much worse than others. Supporting that is Data Firm IHS Markit’s findings, where 80% of the UK service companies it surveyed reported a drop in activity this month, as did 75% of manufacturers.
Reuters reported that most Southeast Asian stock markets fell on 24 April 2020 as restricted movement orders around the region get further extensions. They add that weak global economic data reminded investors of the damage caused by the novel coronavirus outbreak.
The Philippines led losses, falling as much as 1.6% after President Duterte extended the capital’s lockdown until 15 May 2020. “The almost two-week extension will likely cripple Q2 GDP further as roughly 74% of the economy remains on home quarantine,” ING analysts said.
At home, Malaysian telecom company Digi.com lost as much as 4%, hitting a more than two-week low, while oil and gas retailer Petronas Dagangan weakened about 3.3%. To add, the Malaysian Institute of Economic Research shows us that Malaysia’s GDP may shrink by about 2.9% in 2020 compared with 2019. This might result in an estimated 2.4 million people losing their jobs, and out of that, 67% will be among unskilled workers.
As for Singapore, Citigroup Inc. points out that the nation will witness a deeper recession this year after the nation extended and tightened its partial lockdown, widening its forecast for an economic contraction.
“The circuit breaker would cause close to 25%-30% of GDP to come to a standstill, with every month of extension further reducing 2020 GDP by 2% to 2.5%,” shares economists Wei Zheng Kit and Kai Wei Ang. “The technical rebound after the lifting of the circuit breaker on 1st Jun will be capped by continued social distancing and only gradual recovery in exports.”
The Bottom Line
There is an obvious fear of lifting restricted movement orders prematurely, as it may prompt a deadly resurgence of COVID-19 in a nation. However, a crashing economy and high unemployment rates should not be ignored. Prolonged unemployment can lead to erosion of skills, and there is also the fact that some of the more pernicious effects of COVID-19 on a nation can be quite detrimental, and long-lasting.
The good news is that there is hope. As presented in Time, JP Morgan economists predict that economic activity will start to expand again in the second half of the year. It would be even sooner in China, which they say will see growth in the second quarter of 2020 as life there starts to reopen and get back on track once more. Several professionals – such as Vlieghe – echo this statement, commenting that the economy should, in principle, return roughly to its pre-virus trajectory once the pandemic is over.
But the severity of the economic decline and the type of recovery we have is highly dependent on when a nation can reopen, and how its people respond to it. And of course, when that happens, we should all adhere to practices that help keep the pandemic at bay, while a vaccine is being formulated.