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Suppressed demand for rest of year, says Ong

25 May 2020 / 08:22 H.

PETALING JAYA: Global as well as domestic demand will likely remain supressed for the remainder of the year, if not longer, Bangi MP Dr Ong Kian Ming said today.

The unprecedented increase in global unemployment will result in lower disposable income for spending, he pointed out in a statement on the impact of the Covid-19 pandemic on the economy.

“There will also be pay cuts across all levels in many companies which are trying to survive through the Covid economy,” he said.

“Even for those who have gainful employment and have not suffered pay cuts, health fears will decrease the desire to go out to shop, eat and travel. Uncertainties about the future of the economy, not helped by the current political situation in Malaysia, will also dampen consumer demand in the country.”

The former deputy minister of International Trade and Industry said the pains which the retail sector will continue to experience illustrates the nature of this demand shock.

“Shopping malls, for example, are not likely to see foot traffic and buying patterns return to pre-Covid levels after the MCO,” he said.

“There will continue to be mutually reinforcing interactive effects between the supply and demand shocks which will affect the economy negatively. This is also something which is unique to the Covid economy.”

Ong said the most obvious example of this is the travel and tourism sector. “On the supply side, government restrictions have been put in place to limit and in some cases, prevent, inbound tourists,” he said.

“On the demand side, people are not willing to travel overseas because of strict quarantine procedures and also health fears. As such, the travel and tourism sectors will not easily bounce back in the near future.”

Given the severity and likely duration of the negative supply and demand shocks, we cannot assume that policies which have worked in the past to stimulate demand or revive production will work under the Covid economy, he pointed out

“For example, while government spending is important, Keynesian type deficit spending which is not targeted will not have the effect of increasing demand and reviving consumer confidence,” he said.

“Lowering of interest rates may be helpful to lower the borrowing costs for existing businesses but will not necessarily prevent many businesses from going bankrupt because of supply side restrictions.

“We have read the phrases ‘all of government’ and ‘whole of society’ being used as starting points to respond to the Covid economy. This needs to be supplemented with a ‘targeted sectoral approach’ by all of the relevant stakeholders to respond to the demand and supply shocks in the short and medium term, until a vaccine is found and widely distributed.”

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