Boom or bust? The real story in September

There is a serious risk that the post-stimuli situation may be worse than it was earlier because demand has been artificially supported and such support can’t go on forever.

(FMT) – An economist has concurred with a deputy minister’s warning that the full economic impact of the Covid-19 pandemic might be felt only in September.

Deputy Finance Minister Abdul Rahim Bakri had said on Saturday that despite early signs of economic recovery, “the real worry” would come in September with the expiry of government incentives under its economic stimulus programme.

The government has approved RM7.79 billion for more than 2.53 million employees under the wage subsidy programme, with disbursements worth RM6.82 billion benefiting 2.49 million employees.

The programme is set to end in September, the same month of expiry of a moratorium on loan and financing repayments and the i-Lestari facility.

A research fellow of the Institute for Democracy and Economic Affairs, Carmelo Ferlito, said fiscal stimulus measures such as subsidies were only temporary. Many people remained unaware of the actual scale of the economic downturn.

“There is a serious risk that the post-stimuli situation may be worse than it was earlier because demand has been artificially supported and such support can’t go on forever.

“Some economists, including me, have said months ago that the hard lockdown we experienced was based on poor trade-off analysis — and now this truth is coming out,” he told FMT.

He said the negative effects of the MCO lockdown were disproportionately higher than the Covid-19 pandemic itself, saying the lockdown should have been avoided.

“Our containment of the virus was not due to the lockdown, because countries which implemented similar policies failed to contain the virus,” he added.

Putrajaya has been urged by various economists and analysts to extend the six-month moratorium on bank loans. However, Ferlito said the government should not implement a similar extension to the wage subsidy programme.

However, she said banks could still choose to extend the moratorium for borrowers on a case-to-case basis.Academy of Sciences Malaysia fellow Madeline Berma predicted that Putrajaya would not extend the moratorium on loans beyond September as part of its policy.

“It will not be a blanket policy but based on individual borrowers’ needs and repayment capabilities.

“Businesses and sectors that are most impacted by the lockdown should be given the priority to extend their moratorium,” she told FMT.