THE extension of the Recovery Movement Control Order (RMCO), which is considered to be a necessary step to safeguard the people’s health and safety, is expected to adversely impact the economy.
Assoc Prof Dr Baharom Abdul Hamid, director of the research management centre at the International Centre for Education in Islamic Finance, said the extension of the RMCO may be counter productive for the economy, especially since the country recorded consecutive negative growth in the previous two economic quarters.
“Extending the RMCO would definitely be counterproductive and economically restrictive. We need to ensure proper growth room, especially as we are now officially under recession due to negative growth in the past two quarters.
“While the RMCO could enhance the probability of health recovery, it would have an adverse effect economically, especially to the vulnerable group, lower income individuals, and nano and micro entrepreneurs,” he told The Malaysian Reserve (TMR).
Baharom said Malaysia is at risk of stagflation as a result of possible increase in prices of goods, as well as an increase in unemployment rate.
“Stagflation is kind of a rare case and a dangerous one too. When both increase, it has severe economic repercussions. It is difficult for policymakers as well to decide which one to address first.
“One needs expansionary monetary policy, while the other warrants restrictive or discretionary monetary or fiscal policy.”
Baharom said the government needs to tackle unemployment first as inflation is still more or less controlled for now.
The Health Ministry recently recommended that the National Security Council (MKN) extend the RMCO beyond Aug 31.
Minister Datuk Seri Dr Adham Baba said the recommendation was based on the World Health Organisation’s forecast.
Baharom also recommended that the Targeted Enhanced MCO be imposed on districts or areas that have known clusters or infections.
“However, I feel opening up international borders at this point of time would be unwise and unwarranted, rather, we should focus on domestic demand revival.”
Academy of Sciences Malaysia fellow Dr Madeline Berma said the RMCO extension will affect households, small and medium enterprises (SMEs), and the economy at large.
She said many households are struggling to make ends meet due to loss of income arising from the lockdown, appreciating cost of living, income-support aid drying up and the end of the loan moratorium.
“Many SMEs will close down and lay off workers, and this will lead to an increase in unemployment and in terms of economy, it will lead to a contraction in the GDP.
“The deflation risk will rise. In April, Malaysia’s Producer Price Index came in at -5.1%, compared to March’s -1.9% and it is expected to rise if the RMCO is extended. Fiscal deficit is expected to widen. Unemployment rate will increase beyond the current 5.5%,” she told TMR.
She agreed that there is a need to extend the RMCO if new cases continue to rise as people’s health should remain the priority.
“There can be no economic recovery until the virus is contained, so addressing the health emergency is the top priority for policymakers.
“However, there is a need to ease the lockdown by relaxing or lifting borders and travelling restrictions.” A local industry analyst said MKN should extend the RMCO at least until the end of this year as the economy is gradually recovering.
“Some economic indicators have shown some improvement during the RMCO period. So, I believe there would not be much downside risk to the economy if RMCO is extended.
“However, we have to accept that this year’s economic performance would not be better than pre-Covid-19 period even if we do not extend RMCO as our economy was heavily affected during earlier MCO (March and April),” the analyst who equested anonymity told TMR.
Osel Group chief clinical and innovative scientist Dr Kris See said it would not be an easy task to balance socio-economic aspects with health and safety measures.
“We could draw the experience from our neighbouring countries like Vietnam, South Korea and Japan, where they were initially hailed as models for Asia in their Covid-19 management, but paid the price for opening their industries up too early.”
See said it is imperative that Malaysia continues to maintain its tight border controls to contain and break the chain of Covid-19 infections, before opening its doors to foreign tourists including medical tourists.
“I would advise a cautious gradual opening to minimise possible spread. Having said that, we should all work towards opening up our country. Socio-economic factors are just as important as health and safety in the cycle of sustainability.”
MIDF Amanah Investment Bank Bhd head of research Imran Yassin Md Yusof said there might not be a significant economic impact if the RMCO is extended as almost all economic activities have resumed with strict standard operating procedures.
“We have observed how businesses have adapted to the new normal and we opine that the gradual pace in the economic recovery will continue even if RMCO is extended.”