Farah Adilla
KUALA LUMPUR: The Permai stimulus package, introduced by the government last month, will likely have neutral impact on the economy, the Malaysian Institute of Economic Research (Mier) said.
Mier said the government's action in the various extensions of the Movement Control Order (MCO) last year was successful in flattening the Covid-19 curve.
It said the Prihatin and Penjana stimulus packages had helped in ameliorating the worst in economic terms.
This resulted in an uptick in gross domestic product (GDP) and business activity in the third quarter of 2020, after the severe contraction of 17 per cent in the second quarter.
According to Mier's calculation, any additional MCO of two weeks would lead to a contraction of real GDP between -3.0 per cent to -4.0 per cent relative to the 2020 baseline.
"This success of flattening the curve in the fight against the Covid-19 pandemic raised the prospect for a V-shaped economic recovery to an annual average of six per cent, as we had forecasted last quarter for 2021," it said in a statement today.
Hence, Mier said it had kept Malaysia's GDP forecast unchanged at 5.2-6.7 per cent this year.
The bigger downside risk to that forecast would depend on how effective the government's response was to the new Covid-19 surge and impact of the vaccination programme the government would be launching next month, it added.
"But, while flattening of the pandemic had taken six months in the first wave, we expect the flattening of this third wave to take to take more than six to eleven months to work out.
"We expect the real economic recovery to start in the second quarter of 2021. The governments' successful rollout of the national vaccination from February is imperative if we are to achieve this," it said.
Mier said the pandemic remained the major downside to the speed of economic recovery in 2021 as it went into the third wave and mutate into new variants and would still threaten to turn a V-shaped reversal to a U-shaped one.
"Contributing to mitigation of this effect would involve tighter and stricter lockdown and SOP (standard operating procedure) measures, including comprehensive testing especially in factories and construction sites, extensive contact tracing and an accelerated vaccination programme.
"But, Mier emphasises strongly that a full economic lockdown should be avoided for its potential disastrous effect on the economic recovery that has just begun.
"For longer term measures, public spending in infrastructure and health, education and housing, programme to revive the SME sector affected by the pandemic, new incentives to encourage investments in the private sector from domestic and foreign sources are the order of the day," it said.