Economic Crisis in Southeast Asia May Not Linger for Long
Southeast Asian neighbours Malaysia and Indonesia are both struggling to balance their economies amid the ongoing coronavirus pandemic. While Malaysia has already been through a series of challenges like drop in global oil prices and political instability – resulting in the sudden change of government, Indonesia, too, has been under deep economic crisis.
Earlier this week, a report by the World Bank forecasted that Indonesia’s gross domestic product (GDP) will grow at zero percent this year as the world witness the deepest downturn post the second World War. The bank also said that the biggest Southeast Asian economy will witness its weakest performance since the 1998 Asian financial crisis as the pandemic strikes “a devastating blow to an already-fragile” global economy.
However, Indonesian Stock Exchange’s (IDX) main gauge Jakarta Composite Index (JCI) raised to 5,069 points – a jump of 2.48 percent, on Monday before slipping down by 0.7 percent on Tuesday. Moreover, the exchange rate for Indonesian rupiah stood at 13,890 per US dollar on Tuesday, gaining around 5 percent since May 28 and 16.2 percent since March 23 when the currency fell to its lowest level since the 1998 Asian financial crisis.
As per the estimates made by the Indonesian government, this year’s growth is expected to reach 2.3 percent under the baseline scenario and could contract by 0.4 percent in the worst-case scenario. At present, the economic crisis is so bad that Indonesia’s first-quarter growth stood at 2.97 percent only, which is the lowest in 19 years.
To tackle the economic crisis, Indonesia is in talks with the United States to discuss the possible relocation of US companies operating in China to Indonesia. Indonesia’s coordinating minister for maritime affairs and investment, Luhut Panjaitan confirmed that slots from the Kendal industrial park in Central Java and other industrial parks are being offered to American businesses.
Neighbouring country Malaysia is under a “recovery” phase until the end of August, which means certain restrictions are still applicable in the country. After nearly three months of a strict lockdown and COVID-19 infection rate declining, Malaysia is ready to return to the new normal. The country’s central bank has estimated the economy to shrink by 2 percent or grow up to 0.5 percent only this year – which is much lower than the earlier expected 4.8 percent growth.
To overcome the severe economic crisis, Malaysian government rolled out stimulus packages worth RM295 billion (US$69.2 billion) in total, out of which RM45 billion is direct fiscal injection from the government. However, analysts believe once the economic activities resume, disruptions in the supply and demand chains will lessen and the economy will recover as early as he second half of 2020.
Lau Zheng Zhou, research manager of the Institute for Democracy and Economic Affairs (IDEAS), said, “Malaysia has done remarkably well in flattening the COVID-19 curve, thus putting the economy in a stronger footing to recover.”
The direct fiscal injection of RM45 billion by the government includes wage subsidies for small- and medium-size enterprises (SMEs), cash aid, small-scale infrastructure spending, grants, and others. Tax relief or deferment measures worth RM8 billion have also been provided.
Considering the gravity of the economic crisis, employee retention and reduction in layoffs have become the Malaysian government’s priority. Thus, an extra boost of RM5 billion for the wage subsidy programme has been allocated.
As Malaysia reopens its economy and other countries also ease down the restrictions, the World Bank, on Tuesday, predicted that Malaysian economy will improve by the early end of the year and return to growth by 2021.
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