KUALA LUMPUR (May 3): The resurgence of Covid-19 in Malaysia threatens its economic recovery, according to OCBC Bank’s economist Wellian Wiranto.

In a note today, he said recent news reports have suggested that the government is considering a reimposition of a targeted movement control order (MCO) in areas such as Selangor, Kuala Lumpur, Penang and Johor.

While this has been refuted by Senior Minister Datuk Seri Ismail Sabri Yaakob, Wiranto said the evolving situation around the government’s response to this phase of the pandemic merits a close watch.

He added this was particularly in the context of vaccination rates being low, with less than 2% of the population being fully inoculated.

"There is hope that, if implemented, any new restriction order can spare the bulk of economic activities, like in January when factories and shops could stay open even if social and religious activities were curtailed. That would limit the economic damage. Still, the impact will remain palpable, hurting the nascent recovery in business and consumer confidence into 2Q,” he opined.

He also highlighted that Bank Negara Malaysia (BNM) is meeting this week on May 6. While OCBC and the market do not expect the central bank to cut the Overnight Policy Rate (OPR) further, there remains a small tail risk that it might do so.

The OPR currently stands at 1.75%.

Wiranto said at the very least, it would start to flag some of the downside risks more vocally and signal that it continues to have some space for further accommodative policy if required.

According to him, while daily cases — which have crept over the 3,000 mark recently — are still some distance away from the record number of over 5,700 cases in late January, there are signs that the healthcare system is already stretched thin.

“Hospitals in the populous Klang Valley area are experiencing a shortage of ICU beds, and the death rate is creeping up. Invasion of the more infectious virus variant from India has been reported as well, adding to the sense of unease on the ground,” he said.

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