INDIVIDUAL (PROJECT PAPER)
TITLE : IMPACT COVID-19 TOWARDS ECONOMIC GROWTH
Semester
:5
Course Name
: ECONOMICS ISSUES AND POLICIES
Course Code
: ECO649
Lecturer’s Name : SIR HAJI JUNAIDI BIN MOHAMMAD
Prepared by:
Student Name
DG AZIEMAH IZZATI BINTI AISA
Student ID
2019424014
Date of Submission:
2/12/2021
Group
BA250
Signature
TABLE OF CONTENTS
1.0 INTRODUCTION ................................................................................................................................ 3
2.0 IMPACT COVID-19 TOWARDS ECONOMIC GROWTH ..................................................................... 4
2.0.1 Impact On GDP ............................................................................................................... 4-5
2.0.2 Impact towards Economy on Industries .......................................................................... 6
2.0.3 Impact Towards Industry Tourism ................................................................................ 7-8
2.0.4 Impact Towards Global Aerospace .................................................................................. 9
2.0.5 Impact towards Automotive sector .......................................................................... 10-11
2.0.6 Impact towards Employment .................................................................................... 12-14
2.0.7 Impact towards Currency Value for Malaysian Ringgit.............................................. 15-16
3.0 CONCLUSION ................................................................................................................................. 17
REFERENCES ........................................................................................................................................ 18
2
1.0 INTRODUCTION
COVID-19 (coronavirus illness 19) is the most serious problem in the world. Another name
for it is SARS-CoV-2. COVID-19 is a recently found coronavirus strain that causes human
respiratory illnesses. COVID-19 has been discovered in Wuhan, China (World Health
Organization, 2020). At the end of 2019, the Chinese government notified the World Health
Organization that there were many cases of pneumonia with unknown causes. Patient who have
been infected by coronavirus go to seafood market in China which sold live animals and eat
those food , according to the National Health Commission of China. For example bats. The
major causes of coronavirus because they eat the infected bats and make it as source of food
for them. The first case of COVID-19 was detected in Malaysia was on 24 January 2020. The
cases keep increasing and had travelled to affect whole countries and regions with total of 12
cases. COVID-19 has a high transmission rate compared to SARS and MERS. The cases keep
increasing , on 18 March 2020 the government led by Prime Minister Muhyiddin Yassin
imposed a nationwide lockdown known as Movement Control Order (MCO).
The government implemented numerous adjustments to the MCO such as RMCO,
CMCO, and EMCO in order to minimise the impact on the economy while saving lives and
protecting people's livelihoods. It's no surprise that the pandemic has claimed the lives of many
people around the world, compelling everyone to embrace a new standard of masks, SOPs, and
lockdowns. Malaysia is no stranger to lockdowns, having enacted a number of MCOs to
combat the pandemic since the beginning of 2020. Since then, every MCO has been linked to
a detrimental impact on people's mental health, reduced household income, and poverty, among
other things. COVID-19 pendemic give a huge impact towards Malaysian economic growth.
If the coronavirus outbreak spreads and economic powerhouses like China and the United
States fail to arrest their own declines, the country's growth rate might slip below 4%. Countries
throughout the world are already calculating billions of dollars in losses as a result of the Covid19 flu pandemic, which is the deadliest in 18 years. There are many impact of COVID-19
towards Malaysian economy such as impact on industries (aerospace,chemical, electrical and
electronics (E&E), tourism and mitigation measures, SMEs) , impact on GDP , impact on
investment , impact on jobs and etc.
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2.0 IMPACT COVID-19 TOWARDS ECONOMIC GROWTH
2.0.1. Impact On GDP
Malaysia's GDP is expected to rise by 4.5 percent in 2021, despite the COVID-19
virus's significant return commencing in mid-April 2021. According to the World Bank, the
recent increase in infections raises worries about Malaysia's overall capacity and the
implications of the ongoing cycle of opening and closing the economy on households and
enterprises. The news of the first few hundreds of COVID-19 cases reached us in early 2020.
Malaysia's economy contracted for the fourth quarter in a row as the epidemic hit businesses
and forced important economic sectors to a halt.
Malaysia's GDP has been in negative territory since the second quarter of last year,
when the economy fell to -17.2 percent owing to the effects of MCO 1.0. During this time,
most economic operations were halted. The essential global and domestic steps to contain the
pandemic will have an impact on the home economy. Bank Negara estimated GDP growth of
0.7% in the first quarter of 2020, compared to 4.5 percent in the first quarter of 2019 and
reflecting the impact of the MCO in its report on economic and financial developments in the
Malaysian economy.
Figure 1 : Real GDP Growth
4
Figure 2 : GDP Growth
Calendar
GMT
Reference
2021-08-13
04:00 AM
Q2
2021-11-12
04:00 AM
Q3
2022-02-11
04:00 AM
Q4
Actual
Previous
Consensus
TEForecast
16.1%
-0.5%
14.3%
14%
-4.5%
16.1%
-1.3%
-1.5%
Based on Department Of Statistic Malaysia, Malaysia's GDP declined by 4.5 percent
year on year in Q3 2021, reversing from a record high growth rate of 16.1 percent in Q2 and
falling short of market expectations of a 1.3 percent decrease, pulled down by tight limitations
imposed to curb growing Delta strain cases, particularly in July. Meanwhile , for Household
consumption (-4.2 percent vs 11.7 percent in Q2) and fixed investment (-10.8 percent vs 16.5
percent) also fell sharply, while net external demand weighed on GDP as exports gained 5.1
percent (37.4 percent in Q2) but imports expanded at a quicker 11.7 percent (vs 37.6 percent
in Q2). Simultaneously, government spending growth has halted (8.1 percent vs 9.0 percent ).
Mining output (-3.6 percent vs 13.9 percent), services output (-4.9.4 percent vs 13.5 percent),
construction output (-20.6 percent vs 40.3 percent), manufacturing output (-0.8 percent vs 26.6
percent), and agriculture output all declined (-1.9 percent vs -1.5 percent ). To conclude,
COVID-19 give impact towards Malaysia’s GDP.
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2.0.2 Impact towards Economy on Industries
Next ,impact of COVID-19 towards Malaysian economy on industries. Malaysia
quickly opted to adopt a rigorous lockdown known as MCO 1.0, halting all non-essential
company operations, mostly affecting SMEs (small-to-medium companies), and halting export
output. SMEs contribute for 35% of Malaysia's GDP (Gross Domestic Product) and 70% of all
job opportunities in the country. The shutdown had a significant impact on SMEs, leaving
many to confront financial difficulties. In addition, manufacturers who contributed to
Malaysia's export income were instructed to halt operations during the two-month lockout,
causing the economy to fall by 8.3 percent compared to a negative 1.7 percent growth in 2019.
Malaysia announced an RM3.5 billion trade deficit in April 2020, following 169 months of
trade surplus. A major part of our economy is based on SME activity, which employ a large
number of people. About 70% of Malaysia labour is drawn from the SME sector, which
accounts for more than 35% of GDP (GDP).
The government had announced an RM250 billion Covid-19 relief plan as part of the
Prihatin package, which included RM100 billion in help for enterprises, especially SMEs. To
assist SMEs in dealing with the pandemic, the government boosted the allocation of finance
support under BNM's Fund for SMEs (BNM's Fund) from RM9.1 billion to RM23.1 billion.
Facilities under BNM's Fund, channelled through financial institutions, designed to give
immediate cash relief to negatively impacted SMEs, help the recovery of hard-hit economic
sectors, and boost the innovative potential of high-tech SMEs. The goal of providing financial
assistance to small and medium-sized firms (SMEs) is to ensure that their businesses can meet
fixed costs such as monthly rent, employee pay, and so on. This is essential to ensure that the
company can handle the additional hurdles given by the COVID-19 epidemic. MCO 2.0
permitted most firms, SMEs, and export producers to remain open in order to help the economy
recover. As a result, it decreased the impact on business owners, allowing them to earn money
even while the lockdown was in effect. Regardless of this decision, firms and SMEs continued
to struggle to stay afloat because they were still recovering from the previous one.
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2.0.3 Impact Towards Industry Tourism
Besides impact COVID-19 for economy on industry SMEs , there is also impact for
economy on industry tourism during pandemic. The COVID-19 Pandemic has had an influence
on global goods and service demand and supply. Domestic tourism accounts for roughly 75
percent of tourism economies in nations where tourism is expected to decline dramatically. The
tourism business is the most severely impacted by Covid-19. Tourism and hospitality are two
of the most affected industries, demonstrating the direct and indirect economic implications
and damages related with COVID-19. The impact varies by industry. The tourism industry that
involves face-to-face encounters, such as hotels and restaurants, air travel, and tourism
services, is likely to be disproportionately affected.
Figure 3 : Total tourist arrivals by months
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Malaysia has seen a significant decrease in visitor arrivals. Total tourist arrivals in
Malaysia were registered at 26,100,784 in 2019, but had declined by 21,847,787 to 4,252,997
as of mid-2020. It is widely known that the tourist sector in Malaysia plays a significant role
in fostering economic growth by encouraging foreign expenditure on Malaysian goods and
services. If the number of tourists continues to fall, some businesses in the tourism industry
will be forced to close due to unsustainable losses and an inability to pay workers' salaries.
Simultaneously, other non-essential sectors were forced to halt operations during the MCO.
Domestic tourism accounts for roughly 75 percent of tourism economies in nations where
tourism is expected to decline dramatically. The complexity and tough demand would collapse
as a result of foreign customers postponing or withdrawing orders, local and foreign tourists
cancelling vacations, and stock market drops.
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2.0.4 Impact Towards Global Aerospace
As the COVID-19 pandemic spreads around the world, many global aerospace and
military industry companies are suffering the effects. Companies in commercial aviation are
experiencing production interruption and sluggish demand as employees return home,
passengers stop travelling, and clients postpone delivery of new aircraft. Spare component
demand is also down because less maintenance is currently required. Aircraft manufacturers
are capital intensive by nature, generating concerns regarding cash flow and liquidity in the
short term. Contractors are better positioned in the defence sector because COVID-19 will not
have an immediate or mid-term impact. Aerospace contribution towards Malaysia industry to
GDP is RM16 billion with 1.1% of the national GDP of RM 1.4 trillion. The potential losses
industry aerospace is RM 1.2 billion-RM 2.2 billion in revenue. This losses cause some of the
companies are forecasted to stop operation. Many company that stop operation affect to
Malaysia economic because of the potential losses in revenue is higher.
Figure 4 : Impact on Industry Aerospace
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2.0.5 Impact towards Automotive sector
COVID-19 also give impact towards Malaysian Automotive sector. The pandemic has
affected almost every business, including the car industry. COVID-19 had a substantial impact
on the automotive industry in 2021. Factories closed, production fell, supply lines were
disrupted, and demand fell, plainly indicating a turbulent moment of change.The whole supply
chain in the sector has been severely impacted, particularly as a result of the complete shutdown
of activities during the enhanced movement control order (EMCO) in states such as Kuala
Lumpur and Selangor. There are many key automotive company for production vehicle and
components in Kuala Lumpur and Selangor.
Figure 5 : Automotive Industry Performance 2019 and outlook 2020
Based on figure 5,automotive sector give huge impact towards Malaysian economic.
Automotive sector contribution towards Malaysia’s GDP RM40 Billion , 2.9% of the national
GDP of RM1.4 trillion. If COVID-19 give impact to automotive sectors , economy Malaysia
also get affected. According to the Malaysian Automotive Association (MAA) report from July
2021, statewide car sales activity decreased by 96%, with only 1,921 units registered in June
2021 compared to 47,204 in May 2021. Malaysia's economic development has undoubtedly
slowed as a result of the global epidemic.
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The automobile industry has clearly been impacted by the sharp decrease in vehicle
sales. This situation is projected to have a medium- to long-term impact on the business, and
Malaysia's industry would undoubtedly require a significant boost from the government in
order to recover. For instance, the government's inducement to lower the sales tax on new
vehicles last year was a move in the right direction to revitalise the market. The PSU (Program
Subsidi Upah) intends to assist employers whose businesses have been hampered by the
COVID-19 pandemic in continuing to operate and retaining staff.
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2.0.6 Impact towards Employment
Moving on to the other impact COVID-19 towards economy Malaysia is impact on
employment (jobs). Businesses across the country are dealing with a moment of uncertainty,
and many have had to adapt and alter their operations, while others have had to embark on
transformation, major paradigm shifts, and new norm. Covid-19 not only showed the
vulnerability of most industries, particularly those reliant on air travel and tourism, but also
resulted in an exponential growth in Malaysian unemployment. Unemployment is commonly
considered as an economic issue, but its effects extend beyond that, affecting mental health,
stress levels, and, as a result, an individual's quality of life, as well as having an impact on the
community. Staying employed through economic downturns is one of the most difficult things
in life, and when unemployment is rampant, getting job becomes even more difficult. The
Covid-19 epidemic has had an impact on the Malaysian labour market. Job losses and reduced
working hours implemented by employers as cost-cutting measures were observed in almost
all industries affected by unemployment for the year 2020 at 711,000, up from 508,200 for the
year 2019 or an increase in the unemployment rate to 4.5 percent (2020) from 3.3 percent
(2019), according to the Malaysian Department of Statistics (2020).
Figure 6 : Unemployment Rate
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Meanwhile for 2021, Malaysia's unemployment rate fell to 4.5 percent in September
2021, down from 4.6 percent the previous month, as the economy steadily recovered from the
coronavirus disruptions. Unemployment declined 1.1 percent year on year to 729.6 thousand,
while employment rose 1.8 percent to 15.46 million. In the meantime, the labour force
increased by 1.6 percent to 16.19 million. The unemployment rate was 4.6 percent in August
2021. The Covid-19 epidemic has had an impact on people' working hours and incomes all
around the world. The International Labour Organization (ILO) has prepared a list of affected
industries, and immediate government intervention is required to solve the situation.
The Covid-19 crisis has made it difficult for Malaysia's youthful employees to find job
and earn a living. They have more unemployment and are more negatively impacted in terms
of salary decreases and underemployment than other age groups. This has contributed to an
increase in political discontent among Malaysia's youth. The Covid-19 crisis of 2020 and the
ongoing difficulties of 2021 have exacerbated already harsh conditions for young employees
and recent graduates. Prior to 2020, Malaysia's young unemployment rate was lower than the
global average of 13%, but it outpaced the adult working population's (aged 25-64) jobless rate
by a factor of six (compared to the global average of three). Over the last decade, the ratio of
youth unemployment to the national average has risen, and graduate unemployment has
remained a national concern, including issues of disparity in access and quality of higher
education, which perpetuates class segregation.
Young employees faced the brunt of the 2020 recession, which was precipitated by an
unexpected and shocking economic shutdown. Youth unemployment rose to 12.5 percent in
2020, from 10.5 percent in 2019 and 10.7-10.9 percent from 2015 to 2018. Other data, however,
shed crucial light on Malaysia's youth's struggles beyond this headline figure. Young
employees were hit the hardest by the reduction in employment, and those with lower incomes
were disproportionately affected. Evidence suggests that young employment in middle- and
low-skilled occupations is contracting more rapidly.
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This pandemic affected around 81 percent of the world's workforce of 3.3 billion people
in some way. Thus, comprehensive policies are required that focus on, but are not limited to,
the following four aspects: supporting enterprises, employment, and incomes; protecting
workers in the workplace; stimulating the economy and jobs; and finding solutions through
social dialogue between government, workers, and employers. As of 18 June 2021, accepted
wage subsidy applications under PRIHATIN and PENJANA totaled RM12.90 billion via Wage
Subsidy Programme (PSU) 1.0 from 322,177 firms and 2.64 million registered employees. As
a result, for the Wage Subsidy Programme (PSU) 2.0, a total of RM1.28 billion has been
disbursed to 75,262 firms in order for them to continue operating and employ 659,066 people.
By now, it is evident that this pandemic would have severe consequences for both the
Malaysian macroeconomy and the rakyat's economic well-being. The main sources of
economic loss in Malaysia are twofold: the first is the spillover effect from the coronavirus's
effects elsewhere, and the second is generated domestically as a result of the newly imposed
movement control measures. First, long before Malaysia imposed partial lockdown measures,
the breakout of the novel coronavirus in China caused wide-ranging supply and demand shocks
that echoed around the world. Commodity exporters throughout the world have been bracing
for reduced prices as Chinese demand has fallen, while global manufacturers have faced
production cuts as Chinese factories have been shut down.
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2.0.7 Impact towards Currency Value for Malaysian Ringgit
Covid-19 also factor affecting currency value for Malaysian Ringgit. Exchange rate
performance over time is a litmus test for any country's economic management effectiveness.
This holds true for the ringgit, rupiah, and other currencies. The ringgit fell to its lowest level
versus the US dollar so far, at 4.2957, as the US dollar surged on demand for safe-haven
currencies amid global economic uncertainty caused by the Covid-19 epidemic and lower crude
oil prices.
Figure 7 : Malaysia/U.S Foreign Exchange Rate
According to the United States Federal Reserve, the Malaysian Ringgit to US dollar
exchange rate in January 2020 was 4.20290 Malaysian Ringgit to 1 US dollar. Malaysia Malaysia / US Foreign Exchange Rate historically hit a high of 4.29820 in January of 2017 and
a low of 2.17680 in January of 1980. Trading Economics presents the current real value, a
historical data chart, and related indicators for malaysia - Malaysia / US Foreign Exchange
Rate - last updated from the US Federal Reserve in November of 2021. In foreign markets, a
country's imports become more expensive and its exports become less expensive as its currency
appreciates. A higher exchange rate is likely to worsen a country's trade balance, whereas a
lower exchange rate is likely to improve it.
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The ringgit is expected to fall further versus the US dollar next week due to the lack of
a local market trigger and the stronger greenback. According to Hong Leong Research, the US
dollar's rising trend will continue for another week due to inflationary fears and Federal
Reserve rate hike predictions. As per report, the pair last finished at 4.1820 on Thursday, up
0.27 percent week on week after fluctuating between 4.1580 and 4.1830 over the previous five
trading sessions. The ringgit closed the week on a negative note as US economic data remained
good, implying that earlier interest rate hike narratives would gain traction in the future said
Mohd Afzanizam Abdul Rashid, chief economist at Bank Islam Malaysia Bhd.
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3.0 CONCLUSION
In a nutshell, the COVID-19 pandemic has had a significant impact on Malaysia's
economy. As a result, the finance minister plays a critical role in assisting Malaysia in
weathering the crisis during this critical era. Despite economy Malaysia affected, the
government give many incentive as support for any sector economy that affected by the
COVID-19 pandemic. According to DBS Bank, Malaysia's economy is gradually recovering
from the Covid-19 issue after a turbulent 2020 and 2021, although it is keeping its growth
estimates of 4% in 2021 and 5% in 2022. Regardless of the fact that COVID-19 is a global
pandemic, the epidemic's manifestation may differ from one country to the next. This could be
related to the virus's genetics, the features of vulnerable populations, population behaviour, and
the country's response to the crisis.
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