The Economic Impacts of COVID-19

Report of the MIER TIGER Research Group

23rd March 2020

  • MIER presented its Economic forecast for 2020 on 29th July 2019, projecting growth for the year to be around 4.7%
  • On 21st March 2020, after the first outbreak of COVID-19, undertook a review of the pandemic, we announced the results of a preliminary analysis of the economic impact of the outbreak at that early stage which shows that our GDP would be reduced by 0.15% (best case) and 0.77% (worst case).
  • We have revisited our economic analysis based on the latest development of the COVID-19 pandemic and the Government’s response including the ongoing Movement Restriction Order, which has now been extended to April 14, 2020.
 

CGMODEL ASSUMPTIONS

A Computable General Equilibrium (CGE) model captures the interaction between production inputs, outputs, and consumption across all economic sectors explicitly. It enables the analysis of repercussions in the entire economy due to any policy or economic shocks.

Worst-Case Scenario

Best-Case Scenario

  1. 4-week MCO.

  2. Reduction in industrial outputs and trade by 70% during MCO in quarter 1 and 2.

  3. Outputs and trade rebound by 96% and 98% to baseline level in quarter 3 and 4, respectively.

  4. Disequilibrium in labor market when economic activities plummeted.

  1. 4-week MCO.

  2. Reduction in industrial outputs and trade by 40% during MCO in quarter 1 and 2.
  3. Outputs and trade fully rebound to baseline level in quarter 3 and increases by 2% in quarter 4.
  4. Disequilibrium in labor market when economic activities plummeted.

MIER Study on the Economic Impacts of MCO due to Covid -19 Pandemic

[Worst-Case]

GDP, consumption, and employment was simulated. Our study presumed the MCO will be extended by another 2 weeks in the 2nd quarter to achive full compliance. We further assumed all industrial outputs and trade will reach near full recovery (96%-98% of baseline levels) from the third Quarter of 2020.

Macroeconomic Impacts in 2020

Our Recommendations

  • Real GDP contracted by 6.9% relative to baseline.
  • Projected real GDP growth (YoY) = -2.9%.
  • Value of real GDP losses (relative to projected 2020 baseline) = RM102 billion.
  • Job losses; 2.4 million (out of 16 million employed labor in 2019)

–    Unskilled labor = 1.6 million

–    Skilled labor = 780,000

  • Household income losses = RM95 billion (-12% relative to projected baseline in 2020).
  • Private consumption fell by 11%, due to income losses.
  • Overall consumer prices fell by 4.4%.
  • Achieving compliance of MCO at this stage is most paramount relative to economic goals in normal times. Country resources must be directed towards this.

   We then recommend the following mitigation measures;

  • Provision of additional extraordinary budget of RM75 billion (on top of the first allocation of RM20 billion).
  • Establish policies, mechanism and measures to move the economy towards resiliency and genuine prosperity, not unsustainable growth-oriented.
  • Strengthen the roles of our agricultural sector, particularly for food security and sovereignty.
  • Bring back GST with improved mechanism in 2021

MIER Study on the Economic Impacts of MCO due to Covid -19 Pandemic

[Best case scenario]

Impact of reduction in industrial output and trade (due to MCO) in all economic sectors on Malaysian GDP, consumption, and employment was simulated. Our study presumed the MCO will be extended by another 2 weeks in the 2nd quarter to achive full compliance. We further assumed all industrial outputs and trade will fully rebound (100% of baseline level) in the third quarter and increases by 2% in the fourth Quarter of 2020.

Macroeconomic Impacts in 2020

Our Recommendations

  • Real GDP contracted by 2.61% relative to baseline.
  • Projected real GDP growth (YoY) = 1.57%.
  • Value of real GDP losses (relative to projected 2020 baseline) = RM38 billion (RM73 billion in nominal term).
  • Job losses; 951,000 (out of 16 million employed labor in 2019, presumably mainly non-salaried jobs)

–    Unskilled labor = 647,000

–    Skilled labor = 303,000

  • Household income losses = RM41 billion (-5.2% relative to projected baseline in 2020).
  • Private consumption fell by 4.9%, due to income losses.
  • Overall consumer prices fell by 2.05%.
  • Achieving compliance of MCO at this stage is most paramount relative to economic goals in normal times. Country resources must be directed towards this.

   We then recommend the following mitigation measures;

  • Provision of additional extraordinary budget of RM41 billion (on top of the first allocation of RM20 billion).
  • Establish policies, mechanism and measures to move the economy towards resiliency and genuine prosperity, not unsustainable growth-oriented.
  • Strengthen the roles of our agricultural sector, particularly for food security and sovereignty.
  • Bring back GST in 2021 with improved mechanism.

Proposals for the Additional RM75b Stimulus

 

  1. Set up a 20b Emergency Loan Facility for SMEs to be administered through BNM (only for food production, and selected consumer items)Ensure job creations for Malaysians and not foreigners
  2. Create a new Living Support (BSH) Fund of RM20b to give cash of RM500 per month to B50 household for the next 6mths (only for approved spending on essential food + cooking oil, petrol/diesel/LPG, rent, public transport and the like, credited through the E-Wallet)  – involving 3.5 million households, or govt issue vouchers for B50 Malaysians (not foreign workers) to redeem essential food and essential items from shops. 
  3. Skills & Entrepreneurs Development Fund (10b). The aim is to create jobs and increase productivity competitiveness and innovation.
  4. Special Projects Fund   (10b) 
    • Establishing NCD Centers based on consolidation of indiv GP clinics.
    • Women empowerment programs.
    • Program for replacement of foreign workers with Malaysian school  leavers
    • High Value Farming-Empowering and paradigm shifts of smallholders
    • Development of indegenous eBus manufacturing facility & capability (EBIM) and eBus Leasing Company (to be incorporated) – RM2B
    • Development of vendors in EV industry (Manufacturing of EV, EV battery, axle motors, etc) – RM3BCapital Development Fund  (10b)
    • Halal food manufacturing – (the Halal Hub already developed but no activity) – RM500Miv.
    • E-schooling Programs – RM1b
    • Merger of private colleges into a handful respectable colleges and university colleges (eg: merge five struggling colleges into one) – RM1b
    • Current Initiatives
  5. Suspend all repayments of SME Business Loan (less than 10m)/Mortgage (less than 200k loan). Repayments till the end of the year from March.
  6. Continue with EPF Withdrawal Plan.
  7. Suspension of PTPTN/SME loans as announced earlier. Add existing Car Loans below 2,000 cc (not new car loans).
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