Analysts understood that the Prime Minister is merely seeking an economic emergency, to ensure that the government’s spending in the recent months to lift the economy during the current pandemic, is not jeopardised by political developments. — Bernama photo
KUCHING: Although coming as a surprise, analysts say the declaration of a state of emergency until August 1, 2021 by the Yang di-Pertuan Agong Al-Sultan Abdullah Ri’ayatuddin Al-Mustafa Billah Shah is the right move in persevering the economy.
“In our view, given that this state of emergency is one that is not sparked by security or public order, there will not be any mobilisation of military personnel, and hence reducing any unnecessary fear.
“We understand that the Prime Minister is merely seeking an economic emergency, to ensure that the government’s spending in the recent months to lift the economy during the current pandemic, is not jeopardised by political developments,” commented analysts with Affin Hwang Investment Bank Bhd (AffinHwang Capital) yesterday.
The last time an emergency was declared nationwide was back in 1969, a period in which the economy, market and circumstances then and now are totally incomparable, highlighted the team at Public Investment Bank Bhd (PublicInvest Research).
“Therefore, the lasting impact on the market is unknown at this juncture,” it highlighted in its own notes.
“We can only take guidance and comfort from Prime Minister Tan Sri Muhyiddin Yassin’s overnight press conference that all manner of business activity will continue, the second movement control order (MCO 2.0) restrictions notwithstanding.
“He also assured that the civil government will continue to function as-is, and that there will be no executive interference in the judiciary system. Curfews will also not be in force. Malaysia remains open for business.”
What is interesting to note is that an independent special committee will be formed comprising Members of Parliament from both sides of the political divide and relevant health experts who will make recommendations to the Yang DiPertuan Agong on the possible early ending of the Emergency declaration, as and when necessary.
On the same page is MIDF Amanah Investment Bank Bhd (MIDF Research) who believe that there will be no changes to its gross domestic product (GDP) forecast from the declaration of emergency.
This is due to the fact that economic activities are to continue as usual.
“We opine that the economic impact will be from MCO 2.0,” it said. We estimated the impact of two weeks of MCO in five states (Selangor, Penang, Johor, Melaka and Sabah) and all federal territories (Putrajaya, Kuala Lumpur and Labuan) together with CMCO in six other states (except Perlis and Sarawak) could bring down the GDP growth by up to 0.8 percentage points.
“In other words, it will result in a slower increase in Malaysia’s economic growth this year at 6.2 per cent year on year. Cumulatively, all states and federal territories affected by the MCO and CMCO contribute almost 90 per cent of Malaysia’s GDP.”
Even though the movement restrictions are dubbed as MCO, MIDF Research perceived this to be less strict than the first one last year especially with more essential economic sectors, such as manufacturing, construction and, trading and distribution, are allowed to operate.
“Similarly, we do not see any impact from the emergency on corporate earnings,” it continued. “We believe that any impact will be on the MCO where our baseline scenario is that the new MCO shall help to bring down the rate of Covid-19 infections to an acceptable level sooner rather than later.
“Hence, we reckon the new MCO might alter the trajectory of Malaysia’s economic recovery in only a slight negative way. Therefore, the cascading impact on corporate earnings would also be marginal.”