Many of the governments once lauded for their textbook Covid-19 responses, replete with strict lockdowns, sophisticated contact-tracing apps and clearly articulated policies, got tripped up by something in the end. In Singapore, it was an outbreak in foreign worker dorms. In South Korea, it was the premature reopening of nightclubs. Then there were other countries that did nothing glaringly wrong and still suffered. It only goes to show that there's no winning the coronavirus recovery.
Malaysia is a good example from column B. Despite doing a lot of things right, it has seen the steepest collapse of major East Asian economies, with a decline in gross domestic product of 17.1% from a year earlier. Malaysia moved quickly to implement tough movement control orders, while policy makers made big interest rate cuts and introduced supplementary budgets, in addition to loan moratoriums. A fairly well-developed health system managed to suppress infections: Cases numbered 9,240 as of Thursday, lower than many in the region, and there have been 125 deaths. Yet the country stands out for the depth and breadth of its contraction. Not only were exports and consumer spending holed, but the government's ability to put a floor under activity was barely noticeable.
Bank Negara Governor Nor Shamsiah Mohd Yunus is right not to embellish the rebound that she says is under way. Her Aug. 14 press conference discussing the second-quarter fiasco was cluttered with qualifiers and caveats describing activity now: Words like "gradual" and "cautious" were deployed liberally.
Malaysians might reasonably ask: Where is the dividend for doing the right thing? For a nation that aggressively curtailed social and commercial life, the economy looks pretty grim on this side of lockdown. The contraction will still be significant this year, between 3.5% and 5.5%, the central bank reckons. Quite the contrast to the prior forecast that held out hope of at least minimal growth.
Across the region, the second quarter was supposed to be the nadir. Regardless of whether clampdowns were hard or soft, irrespective of their prescience or tardiness, contractions were sharper than expected. Only the Philippines came close to Malaysia, notching a 16.5% drop compared with a year earlier. Thailand, often maligned for its dependence on tourism, escaped with a mild downturn by comparison. Japan, Singapore and Indonesia all took big hits, differing in magnitude.
The recoveries now depend as much on the globe as home-grown initiatives. Exporters like Malaysia find their economies are waking up to a less-than-stellar world. People still seldom use the "V" letter and should give up on alphabet soup, period. But Malaysia could benefit from any boom in telecommunications equipment as more employees around the world work from home; the country is one of the biggest semiconductor exporters, having made a big bet on electronics manufacturing just as the age of globalization was dawning in the 1970s.
Despite difficulties getting fiscal stimulus out into the real economy, Malaysian politicians have pledged to keep at it. The opposition party has even signaled its support for raising the country's debt limit. Meanwhile, the central bank remains open to doing more: "Should there be a second outbreak, there is room for targeted policy measures to complement the ones implemented earlier," Shamsiah said. "For example, the bank's policy levers can be expanded or extended within this mandate."
Some have interpreted that as a veiled reference to the prospect of bond purchases to buttress an extended period of fiscal expansion. Once a no-no for serious technocrats, significant central bank buying has caught on recently in places like Indonesia and the Philippines.
It wouldn't be the first time Malaysia acted as a rebel in times of economic and financial distress. In the depths of the Asian financial crisis in 1998, officials defied convention by fixing the exchange rate and slapping some controls on capital. Many predicted it would end in tears, a view I concurred with at the time. We were wrong.
Having done the hard yards on the virus and suffered economically, few can blame Malaysia for feeling shortchanged. The nation emerged from hibernation into a world whose recovery prospects are tougher than envisaged. Some kind of reinvention — monetary or otherwise — is in store.
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.
Disclaimer: This article first appeared on bloomberg.com, and is published by special syndication arrangement.