Written by K. Thiruchelvam
Image credit: Masked Crowds and Scooters at Donghu Cai Market 東湖菜市場, a Traditional Day Market in Taipei’s Neihu District by midnightbreakfastcafe. Flickr, license: CC BY 2.0
Our earlier article described how governments in Malaysia and Taiwan have responded to the challenges of the COVID-19 pandemic on their health systems. We identified common themes from both countries’ responses to the pandemic and acknowledged the importance of public sector capacities and capabilities in shaping and steering them. This second part of the article will describe how governments in Malaysia and Taiwan have responded to the challenges of the pandemic in their economic sector.
Malaysia: Impact of COVID-19 on the Economy
The Malaysian economy was not spared from the ravages of the pandemic where it slipped into negative territory in 2Q2020 as the economy contracted by 17.2%, with overall GDP dipping by 5.6% in 2020. Moreover, the GDP growth forecast for 2021 was revised downwards to between 3% and 4% due to the continuing resurgence in COVID-19 infections.
Almost every economic sector in Malaysia was affected by the pandemic. The construction sector––with its heavy dependence on foreign workers––contracted sharply (both in GDP contribution and labour productivity) in 2020, suggesting the dangers of overdependence on unskilled and low-skilled foreign workers. The tourism sector felt the full brunt of the pandemic, mainly due to worldwide travel bans and travel risk aversion. However, most sectors are expected to improve in 2021 with the opening up of economic activities.
The upturn in economic activities is welcome news to small and medium enterprises (SMEs) in Malaysia, as a great majority of them were severely affected by the lockdown imposed in March 2020 and subsequent variations of containment measures. As a result, 34% of SMEs experienced a significant decrease in sales of more than 20% in 2020, compared to 2019. A large number of SMEs has benefitted from the various stimulus packages designed to support businesses. However, many reported that they were unaware of the assistance provided by the Government and financial institutions, while others expressed dissatisfaction over the lengthy application processes to access the assistance packages.
Similarly, trade in Malaysia has been strongly impacted by the various restrictions, but there are early signs of recovery. While trade with most countries slid into negative territory in the first half of 2020, exports to the United States and China have registered positive trends. As a result, total trade is anticipated to increase by 16.8% in 2021, with gross exports projected to increase by 17.1%, while gross imports are forecasted to expand by 16.5%.
The country’s labour market was not spared from the debilitating effects of the pandemic. Over 100,000 retrenchments were recorded in 2020 and another 35,000 in the first half of 2021. Unemployment reached the highest rate since 1990 at 4.5% in 2020. Overall, the crisis has deepened existing inequalities in the economy and society, with marginalised worker groups like women, youth, and less-educated workers being hit hardest.
The catalogue of casualties from the rampaging virus also included individuals and households. Malaysia’s per capita income in 2020 shrunk by 6.5%, and mean salaries declined by 9% from 2019. Up to one million households in the middle 40% of household income groups have now been relegated to the bottom 40% category.
To cushion the devastating effects of the pandemic, Malaysia has taken swift actions to implement various assistance and economic stimulus packages totalling RM530 billion (USD 126 billion) to assist people and businesses in weathering the crisis. In addition, an oversight mechanism to monitor and evaluate the funds disbursed under the various stimulus packages has been established to ensure that the funds are prudently expended as well as to enhance public service delivery.
Taiwan: Impact of COVID-19 on the Economy
While most countries experienced diminished growth rates due to the effects of COVID-19, Taiwan’s GDP is expected to grow by 6.09% in 2021, its highest level since 2010. Rising exports buoyed by high-tech products will spur a projected growth rate of 4.15% for 2022.
Several industries––namely, airlines, electronic components, machine tools, petrochemicals, and automotive parts––were heavily affected by the pandemic. However, despite the prevailing gloom, Taiwan witnessed an upsurge in sales for some products, especially from its information and communication technology and semiconductor sectors.
Small businesses (SMEs) in Taiwan remain moderately resilient in the face of COVID-19-related uncertainties. In a recent survey, 46% of small businesses reported growing in 2020, while 56% expected to grow in 2021. The Taiwan Central Bank has approved more than NT$400 billion (USD 14.4 billion) in loans to assist the SMEs hit by the pandemic to ensure that they continue to play a vital role in revitalising the economy.
Taiwan’s economy outperformed many of its regional peers during the COVID-19 pandemic. Exports of electronics, such as semiconductors, have soared on the back of high global demand for 5G technologies and work-from-home devices. External demand is further boosted by a rebound in global economic activity in 2021, particularly by its key trading partners such as China and the United States. Imports, however, grew at a slower pace due to soft domestic demand.
The sudden escalation in COVID infections in Taiwan from May to August 2021 resulted in several business closures following enhanced restrictions. As a result, the unemployment rate reached the highest level at 4.76% in June 2021 but has since gradually declined with the improving situation as well as the expanding economy.
Despite its stellar economic performance, household income inequality in Taiwan in 2020 was the highest in eight years, with the top 20% of households earning 6.13 times that of the bottom 20%. As in other countries, the pandemic in Taiwan has hit the disadvantaged sections of society far greater than the well-heeled.
To reduce the negative impacts of the pandemic on the economy and society, the Taiwan Parliament, as of December 10, 2021, has approved a total of NT$839 billion (USD 30 billion) covering relief packages, COVID-19 prevention and control, bailouts, economic stimulus measures and employment assistance schemes. Free Triple Stimulus Vouchers, later rebranded as the Quintuple Stimulus Vouchers, were offered to low-income individuals to enhance domestic consumption. Additionally, in May 2020, the Taiwan government launched a programme to accelerate the transformation of six core strategic industries.
Both Malaysia and Taiwan have responded swiftly to the devastating impacts of the coronavirus pandemic with a slew of measures encompassing, among others, economic stimulus packages, direct cash transfers, tax breaks and employment support schemes. In the case of Taiwan, additional focus has been accorded to the promotion of six key industries, which the country hopes to excel in the near term to enhance its competitiveness and expand its export base. These support measures have considerably mitigated the financial brunt firms and households face, although their design and implementation can be enhanced by addressing issues discussed earlier.
Key Lessons
In summary, the responses to the impact of COVID-19 on the economy by Malaysia and Taiwan demonstrate several lessons as follows:
- Importance of swift actions to introduce relief and stimulus packages to alleviate the burden of citizens and businesses following the pandemic;
- Provision of comprehensive stimulus packages and social support measures to assist the most vulnerable members of society, including firms and industries that have been severely hit by the government-mandated containment measures as well as by the global economic downturn, besides preparing for a post-pandemic future;
- An effective oversight mechanism/agency is crucial in monitoring and evaluating the disbursements and effectiveness of the stimulus packages and relief measures;
- Adopt a targeted approach in the provision of stimulus packages to enhance the capabilities and competitiveness of selected industries so that they will be able to thrive and generate returns to the country when the economy rebounds.
A consistent underpinning theme emerging from our article is that any successful intervention against the pandemic cannot ignore the dynamics of the close nexus among the health system, the economy and politics. Policymakers cannot intervene in any of these domains in isolation without consideration of the others. While the pandemic has left deep scars in many countries, the responses by Malaysia and Taiwan have shown that swift actions, resilient health and economic systems, and strong public support are crucial to mitigate the pandemic as well as setting the stage for future recovery. Churchill famously said that we should never waste a crisis. Indeed, the opportunities emerging from the pandemic can provide new avenues of growth, institutional strengthening and reconfiguration for those countries that are well prepared to grasp them.
K. Thiruchelvam is presently a freelance consultant. He was earlier the Dean and Professor at the Perdana School of Science, Technology and Innovation Policy, Universiti Teknologi Malaysia (UTM). His recent article can be accessed here: https://doi.org/10.1177/0971721819873186.
This is part two of a two-part article. In this part, it celebrates the fact that policymakers cannot ignore the nexus among the health system, the economy and politics for any successful intervention against Covid-19.
Taiwan Insight 