AS the Recovery Movement Control Order (RMCO) introduced on June 10 allowed some relaxation measures to kick in, consumer spending expected to get a healthy boost is still seen by analysts as lackadaisical based on the projection of the retail sector in the months ahead.
The first quarter of this year's Gross Domestic Product (GDP) saw private consumption growth has decelerated to 6.7 per cent from 8.1 per cent in the fourth quarter of 2019. The prognosis for the second quarter's consumer spending also looks bleak.
In April, the Malaysian Retail Associations reported the sales value of wholesale and retail trade have plunged to -36.6 per cent. Also, the Malaysian Institute of Economic Research (MIER) released the consumer sentiment index – from 82.3 in 4Q19 to 51.1 in 1Q20.
Going into the third quarter, it is essential to note that higher consumer spending – defined as individuals or families purchasing goods and services – is crucially needed as consumption is one of the engines of growth for the economy, especially in time of Covid-19.
Hence, this is the time the rakyat play a vital role by spending more, as the government puts money in their pockets through the Prihatin stimulus in the form of the Bantuan Sara Hidup for the B40 segment of the population and Bantuan Prihatin Nasional (also for the B40 and some segments of the M40).
According to economists, the average propensity to consume is the greatest among the low and lower middle income, and it is in this regard that these two groups can help the nation by spending and consuming.
The implementation of the MCO during the Covid-19 pandemic was a spectacular success that it had left an indelible mark on our behaviour as a consumer, which in turn, has affected the economy when the rakyat feel wary and less confident in going out, forcing them to spend less, stifling economic growth in the country.
Hence, Minister of Economic Affairs in the Prime Minister's Department Datuk Seri Mustapa Mohamed, lamented traffic jams and crowded malls are theoretically leading to higher consumer spending, but real economic activity has yet to catch up.
This could be due to the reluctance of people to spend as they may be overshadowed by fears, lack of confidence, and also being too cautious about going out and spending during this difficult time.
Realising this, the government relaxed further the SOPs when Senior Minister for Security and Minister of Defence Datuk Seri Ismail Sabri Yaakob announced theme parks, including water parks, are permitted to operate, and the temperature screening will only be tested once at the entrance to malls and hotels, easing some economic processes and improve consumer spending.
It is hoped these relaxation measures can be customised for the tourism industry that is hard hit by the pandemic.
A report by JP Morgan is quite telling when it stated that the longer the period during which social distancing measures are needed, and the longer the period of reduced travel to restrict the transfer of the infection, the higher will be the impact on corporate earnings.
Besides, Rakuten Insight's survey on Malaysia in May also revealed 88 percent of respondents aged 35 to 44 said they would continue to buy goods online even when businesses are open and social distancing measures are lifted.
This raises the question of whether the gloom and doom report on the retail sector takes into account the increased digital retail sales transaction that may be just more than offset the drastic drop in physical retail sales because there is no breakdown between the figures on physical retail sales and digital retail sales.
In our conversation with Apple Store managers at some of KL shopping malls, we were told the sales of iPhone 11 boomed drastically during the MCO that most stores had their iPhone out of stock. The interesting thing is - all the sales went digital because of the MCO.
A roaring business for iPhone and the Grab delivery guys where these store managers used for the
delivery of their iPhone to their customers. The government's relaxation measures aimed at helping companies to operate normally would hinge on the people's attitude on visiting the physical stores.
The writers are part of the research team at EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research.