Demand to stay weak even after MCO is lifted, says AmBank Research

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KUALA LUMPUR (April 6): AmBank Group Research said even if the movement control order (MCO) is lifted by mid-April or end April, demand is expected to be weak for some time due to travel aversion and social distancing.

In a thematic report today, AmBank Group chief economist and head of research Dr Anthony Dass said many SME businesses have been forced to close their doors, and some may not reopen.

Dass, who is also an adjunct professor in economics at the University of New England, Sydney, Australia, said apart from revenue loss, they will be impacted by poor credit standings.

He said the drop in consumer and corporate spending will intensify the adverse chain reaction that will fuel the collapse of micro businesses, especially the younger and smaller businesses due to their highly vulnerable situation.

“Generally, the older and larger small businesses are more likely to withstand an economic crisis. Exports will stay weak from lockdowns. Commodity prices will be soft.

“Bankruptcies and bad loans are concerning factors. Job losses are also a concern although these are expected to vary considerably according to the age and size of the small businesses,” he said.

Meanwhile, Dass said the unprecedented impact from the Covid-19 pandemic is seen hurting the global economy on two aspects i.e. supply and demand.

He said it has induced global recession including Malaysia.

“We have reduced the 2020 global gross domestic product (GDP) to 0.8% from previously 2.8% and Malaysia’s growth to 0.4% with the downside at -2.0, from previously 3.0%.

“Our SMEs growth for 2020 is 1.9% with the downside at -0.5% from previously 6.0%,” he said.

Dass said with the growth downgrade comes a loss in revenue – at the national level between RM58 billion and RM92 billion from AmBank’s initial projection of 4.5% GDP for 2020 while for SMEs is between RM23 billion and RM36 billion based on the initial growth of 6.0%.

“Thus, it reduces average per day revenue to RM0.03 billion based on a 1.9% SME growth from RM0.09 billion previously at 6.0% growth.

“The risk for SMEs’ average per day earnings to shrink cannot be ruled out, estimated at -RM0.01 billion at -0.5% growth,” he said.

Dass said in the long term, policymakers and business development providers should remember that the 2008 global financial crisis (GFC) was being distinctly damaging to SMEs.

“And that was at a time when shops and restaurants could still rely on social interaction and foot traffic for business. Covid-19 has stripped even that advantage away.

“This crisis will demand a set of policy support measures that are both broader and longer term than those pursued in 2009. Otherwise, small businesses are certain to face a calamity,” he said.

Thus, Dass said measures should look into post coronavirus rebuilding of the economy.

“There must be a single government-backed public-private partnership agency tasked to rebuild the SME economy. Hence, it will be vital to look back at what happened to SMEs during the 2008 GFC and probably as far back as the 1997 Asian financial crisis.

“It may offer some clues on how small businesses experienced economic contractions compared to larger businesses although the coronavirus impact will likely differ in severity and duration from the past two crises,” he said.

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