How Has MCO Affected the Malaysian Economy?

It comes as no surprise that the pandemic has affected many lives globally, forcing everyone to accept a new norm of masks, SOPs, and lockdowns. Malaysia is also no stranger to lockdowns, having implemented various MCOs to combat the pandemic since the start of 2020. Every MCO since then has been associated with negatively impacting people’s mental health, reducing income in households and poverty, amongst other things. 

But what about the Malaysian economy?

Efforts by the government with multiple modifications to the MCO such as RMCO, CMCO, and EMCO intended to minimise the impact on the economy while saving lives and protecting their livelihoods were made. But was it really possible to save both at the same time? While active cases were reduced with repetitive lockdowns, were we seeing the same positive performance to the economy?

MCO 1: March - May 2020

The announcement of the first few hundreds of cases of COVID-19 came to our attention in early 2020.Malaysia swiftly decided to implement a strict lockdown known as MCO 1.0, halting all business operations deemed non-essential, effectively impacting SMEs (Small-to-medium enterprises), and halted export production.

SMEs contribute to 35% of Malaysian GDP (Gross Domestic Product) and to 70% of the jobs in the entire market. With the lockdown, SMEs were severely affected, causing many to face financial struggles. Added to this impact, manufacturers that contributed to Malaysia’s export income were ordered to stop operations during the two-month lockdown, causing it to contract by 8.3% compared to a negative 1.7% growth in 2019. In April 2020, Malaysia reported a trade deficit of RM3.5 billion, after 169 consecutive months of a trade surplus.

The first MCO has also impacted the tourism industry, suffering losses of RM45 million in tourist expenditure. With all economic losses combined across industries during MCO 1.0, Malaysia suffered a total of RM2.4 billion per day. 

MCO 2.0: January - February 2021

Throughout the months after MCO 1.0, Malaysia experienced several less restrictive MCOs, such as RMCO and CMCO, but again was forced to implement a stricter one in January 2021 due to the rise in infection cases. However, MCO 2.0 didn’t have the same extreme impacts, unlike the first MCO, due to lesser restrictions. 

To put the economy through a path of recovery, MCO 2.0 allowed most businesses, SMEs, and export manufacturers to remain open. Thus, it lessened the impact on business owners, helping them gain income even during the lockdown. Regardless of this decision, businesses and SMEs still struggled to stay afloat because they were still recovering from the first. Not to mention, many consumers and investors remain pessimistic about the economy and are choosing to save rather than spend, resulting in a significant reduction in sales and profits. 

Even though this MCO wasn’t as extreme as far as restrictions go, Malaysia still recorded a loss of RM600 million daily, and at what cost? 

MCO 3.0: May 2021 - Indefinite 

Just as Malaysia was recovering from the 2nd MCO, it saw an exponential spike in the infection rates since the beginning of May. In response, the government reinstated another MCO with more lenient restrictions where most businesses were still allowed to operate and eateries only allowed to provide takeaway services. This modified form of MCO caused the economy to suffer RM200 million daily, comparably lower than the first two MCOs.

However, after a few weeks of MCO 2.0,  cases were still increasing and even made record-breaking numbers when we hit the 9,000 on 29 May. These concerning numbers called for a decision to impose a total-scale lockdown known as EMCO on selected states, starting from 1 June 2021 until daily cases drop below 4,000 daily 

Datuk Michael Kang, the president of SME Association, predicted that MCO 3.0 will inevitably have a significant impact on SMEs as 37.7% of SMEs were bound to face closure if the lockdown persists. He also mentioned that this can cause more than 40% of SMEs to face financial difficulties in meeting expenses, putting at least 2 million people unemployed by the end of the lockdown. In regards to export production, MCO 3.0 is estimated to have up to 1% or more of the GDP. 

Knowing the concerns of business owners and households, and to prevent the collapse of the economy, the government introduced assistance and  economic stimulus packages totalling RM340 billion to aid the nation. With these initiatives, 20 million households and over 2 million businesses benefited with economic injections worth over RM200 billion. Despite these formidable actions to put the economy on a recovery path, the four-week lockdown andEMCO imposed on selected states in Malaysia are still highly impactful, with CGS-CIMB estimating a daily loss of RM1 billion.

So, what does the future hold?

In short, Malaysian economy was hit the hardest during the implementation of the first MCO where it ventured into negative territory in 2Q2020 and the economy dipped to -17.2%. Malaysia’s full GDP growth for 2020 was recorded to be at -5.6% compared to 4.4% in 2019. For the first quarter of 2021 when the 2nd MCO was implemented, the country’s GDP contracted by 0.5%, which is significantly lower than that of 2020.

Bank Negara governor Datuk Nor Shamsiah Mohd Yunus mentioned that Malaysia would be on track to have a projected growth of between 6% and 7.5% for 2021 — subject to change due to the implementation of the 3rd lockdown. With the full lockdown implemented far longer than intended, CGS-CIMB had forecasted Malaysia’s full-year GDP at only 4.4% projected growth, lower than the initial expectations. 

With the introduction of the Vaccine Immunisation Programme, which is expected to vaccinate 80% of its total population by February 2022 to achieve herd immunity, many economists believe that this remains the key to a full economic recovery. Despite the positive expectations made by the government, reaching the target still seems to be highly doubtful, considering the record of the vaccination roll-out, which vaccinated only 7.2% of its population on the 4th of June after 100 days into the vaccination process. To realistically reach herd immunity by February 2022 is idealistic, and we can expect to achieve it only by mid-2022 due to the average number of vaccinations recorded today. 

After Malaysia achieves herd immunity, we can expect the economy  to recover, with market confidence surging up, causing consumption and investments to  increase steadily. Whilst it is too soon to analyse the impact of 3rd MCO accurately, , it is worth noting that Malaysia registered a contraction of 0.5% in 1Q2021 despite going through FMCO, compared to a contraction of 3.4% in 4Q2020, showing promise of GDP performing better in 2021

While we can remain positive with better performing GDP and increasing vaccinations issued, we need to brace ourselves for any lockdowns that may happen in the year as variants of the COVID-19 evolve and cases continue to rise. Any other economic impact would undoubtedly cause further downfalls to businesses that are presently struggling to survive. As it stands, 40% of SMEs are currently on the brink of shutting down.

With the future looking bleak, what can we do as a society, to improve the economy from deteriorating even further?

While it’s hard to take major actions during this EMCO period, we all have a role to play as a society to help those affected by the economy and to keep holding onto hope that recovery is right around the corner. The most important thing is always to remember to help  those around you by supporting local businesses and, following the white flag movement, donating to those in need whenever and however possible. While we look forward to a recovered economy in the future, let’s also focus on the people that make up the economy.