2nd Quarter 2020 GDP Contraction – Do you still believe that the PN government is a government that cares for you?
On the 27th of March, 2020, 9 days after the start of the Movement Control Order (MCO), Prime Minister Tan Sri Muhyiddin Yassin said this during his speech on the PRIHATIN relief package – “This government may not be the government that you voted for. But I want all of you to know that this government cares for you”. During these early days of the MCO, many people were willing to give the benefit of the doubt to the Prime Minister. Now, almost 6 months after the formation of the Perikatan Nasional (PN) government, with the benefit of hindsight, we have good reason to doubt that the PN government is really a “government that cares for you”.
Let’s start with the recently announced 2nd Quarter 2020 GDP figures. Malaysia’s economy contracted by 17.1%, the worst performance among Asian countries during this period. Singapore, which announced its own lockdown or ‘circuit breaker’ on the 7th of April, experienced a 13.2% contraction. Indonesia experienced a 5.3% contraction. This quarterly fall in GDP is even higher than the 11.2% contraction experienced in the 4th quarter of 1998, during the height of the Asian financial crisis.
Table 1: GDP contraction by sector from 2Q 2019 to 2Q 2020
| 2Q 2019 | 2Q 2020 | Change (RM billion) |
% Change | |
|---|---|---|---|---|
| GDP at constant 2015 prices (RM billion) |
349.2 | 289.6 | -59.6 | -17.1% |
| Agriculture | 24.3 | 24.5 | 0.2 | 0.8% |
| Mining and quarrying | 26.1 | 20.9 | -5.2 | -19.9% |
| Manufacturing | 79 | 64.5 | -14.5 | -18.4% |
| Construction | 16.1 | 8.9 | -7.2 | -44.7% |
| Services | 199.7 | 167.4 | -32.3 | -16.2% |
In absolute terms, the GDP in 2Q 2020 fell by RM59.6 billion (year on year comparison with 2Q 2019). The construction sector fell by almost half (-44.7%). The manufacturing sector contracted by RM14.5 billion or 18.4%, the mining sector contracted by RM5.2 billion or 19.9% and the services sector, which comprised more than half of the GDP, contracted by RM32.3 billion or 16.2% (See Table 1 above). This unprecedented GDP contraction caused Bank Negara Malaysia to change its GDP forecast for 2020 from -2% to 0.5% to an updated forecast of -3.5% to -5.5%. It remains to be seen if this forest will be revised downwards further when the 3rd Quarter GDP figures are announced on the 13th of November, 2020.
This steep contraction could have been lessened if the PN government had not rushed into the MCO without a coordination plan in place. The MITI website infamously crashed during the first couple of days of the MCO as thousands of companies flooded its website to apply for approvals to continue operations during the lockdown. The delays in getting the necessary approvals would have been very costly for companies operating in the essential sectors. Furthermore, there was no consideration in giving approvals to many suppliers of those in the essential sectors. For example, a milk production company complained that their supplier of milk cartons and bottles were having problems getting the approval from MITI.
There was also poor coordination between the Ministry of Transport, the port operators and transporters leading to cargo piling up in our major ports because transporters did not have permission to transport these goods and factories did not have permission to open to receive these goods. The Minister of Transportation had to issue a few directives to allow for the clearing of the ports for a few days per week during the early part of the MCO.
After shutting down the economy without a coordination plan in place, the PN government suddenly wanted to open up the economy again on the 1st of May. This led to the fiasco whereby SOPs were not prepared and stakeholders such as the state governments were not properly briefed. Most Malaysians would remember this time as the time when hairdressers were given permission to start operating again without having any clearly published SOPs.
Many SMEs were suffering during the lockdown and the assistance provided by the PN government in the form of the Wage Subsidy Program (WSP) was clearly not sufficient. Many SMEs were looking for a more targeted and generous program such as those announced in Singapore’s COVID Relief Bill in April 2020 and further enhanced in June 2020. But rather than tabling such as bill during the parliamentary sitting on the 18th of May, 2020, this PN government decided to only have a half a day sitting on that day. The reasons given were fear of the COVID virus and also not wanting to ‘play politics’ during the time of the MCO. But these fears did not prevent the Prime Minister from appointed a larger number of PN backbenchers and other PN politicians as chairmen of various GLCs and statutory bodies. These fears did not prevent the PN from bringing down the BERSATU led PH government in Kedah and from trying to do the same in Negeri Sembilan and Selangor, without success. When the COVID Relief Bill was finally tabled during the current parliamentary sitting, it is already too late to save the SMEs which have had to close down as a result of the MCO.
What is becoming increasingly clear is that the PN government, led by Tan Sri Muyhiddin Yassin, is NOT a government that cares for you but rather, a grouping of politicians with their own separate interests and priorities, all wanting to gain access to power for themselves rather than to serve the people of Malaysia.