MP SPEAKS | Responding to the Covid economy: Understanding supply and demand shocks

MP SPEAKS | It has been more than two months since March 18, which was the start of the movement control order (MCO) in Malaysia and the full extent of the negative economic impact domestically will not be known for a few months.

But as we approach June 9, and hopefully the lifting of the conditional movement control order (MCO), the country needs to have a comprehensive and substantive plan on reviving the economy and adjusting to the new normal.

To be able to plan effectively, we must first understand the unprecedented impact of the Covid-19 virus on both domestic and global economies in terms of supply and demand shocks. Our understanding will shape the policy choices that are before us under a Covid economy and how conventional economic and financial measures may work differently under a vastly changed economic structure. Without this understanding, we may run into the danger of adopting policy tools which are ineffective in a Covid economy,

The Covid virus resulted in a severe negative supply shock to China’s economy, and it has now spread to the rest of the world. We have had negative supply shocks in the past. The oil crisis in 1973 resulted in a quadrupling of oil prices which then led to petrol shortages...