Nurul Izmaniza binti Roslan97756IA
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University Malaysia Sarawak**We aren't endorsed by this school
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PRINCIPLES EBE1053
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Economics
Date
Dec 21, 2024
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14
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Faculty of Economics and Business UNIVERSITI MALAYSIA SARAWAK 94300 Kota Samarahan Sarawak GroupG01 Miss Farhana Ismail √INDIVIDUAL ASSIGNMENT (15%) This assignment will address the following Course Learning Outcomes from the Course Outline: CLO1: Demonstrate the understanding of basic macroeconomics concepts from different perspectives. CLO2: Analyse the current issues by using basic macroeconomics concepts. Course Code/Name : EBE1083 Principles of Macroeconomics Semester/Session : Semester 2, Session 2023/2024 Submitted by : Nurul Izmaniza binti Roslan 97756 Please ensure to submit your softcopy in your respective instructor’s eLeap site.
Table of Contents Introduction ..............................................................................................3 Challenges ................................................................................................4 Opportunities............................................................................................7 Conclusion .............................................................................................11 References ..............................................................................................12 Appendix ................................................................................................14
Introduction Coronavirus, Covid-19 pandemic had taken a toll of global economy especially Malaysia’s economy. Covid-19 pandemic caused the World and specifically Malaysia going through a lot of difficulties because of Movement Control Order (MCO) that needed to be executed during pandemic. MCO had changed a lot of the world and Malaysia economy structure. The world faces a lot of macroeconomic challenges and opportunities during the post pandemic. Not to forget that Malaysia also faces the same macroeconomic challenges and opportunities. In order to shed light on how Malaysia and the rest of the world can take advantage of these dynamics to promote resilient and inclusive growth in the wake of the pandemic, this essay examines these three macroeconomic challenges and their corresponding three opportunities.
Challenges The first macroeconomic challenge is the high unemployment rate. The unemployment rate is the percentage of individuals of working age who have taken particular efforts to find employment and who are unemployed but available for work (OECD,2024). During the pandemic, many companies all around the world undergo many difficulties in maintaining their business. Some small companies cannot keep up with the economic doom and need to be closed. Thus, the workers of the company had nowhere to go and became unemployed forcefully. This phenomenon happened globally, and Malaysia is not an exception. This phenomenon made unemployment rate in Malaysia increased significantly. The unemployment rate before pandemic is 3.3% in 2019 and increased seriously to 4.5% in 2020. In 2021, unemployment rate also increased to 4.6% compared to the previous year (refer to Figure 1). The unemployed individual cannot even find any job during the pandemic. The MCO affected a lot of jobless individuals in employing themselves due to movement restriction. This leads to prolonged unemployment. Prolonged employment is people who have been unemployed for a full year or longer are considered long-term unemployed (OECD, 2024). In the post pandemic era, the prolonged unemployed individuals will be going through hard challenges in searching for new jobs because their skills were degrading and unimproved due to prolonged unemployment. The competitiveness in the labor market after the pandemic is high due to limited number of companies surviving also affect makes the unemployed individuals demotivated in search of new jobs. For instance, many hotels in Malaysia were required to close during pandemic because of tourism activities were prohibited. Some of shut down hotels in Malaysia are Ramada Plaza Melaka, G City Club Hotel and Jazz Hotel (Chandiran,2020). Because of the decreasing number of hotels operated, job opportunities also decrease thus, competitiveness in hospitality sector labor market increases after the pandemic. The unemployment rate in the hospitality sector also increases. In the nutshell, pandemic affected unemployment rate globally and in Malaysia remarkably. The second macroeconomic challenge that will be discussed is the high cost of living. Cost of living is the amount of money needed to maintain a specific standard of living; this is typically determined by averaging the prices of several different goods and services that a community needs
(Britannica, 2024). In the post pandemic era, cost of living increased remarkably around the world including Malaysia. It happened because of a lot of factors. According to Azmi. Et al, a number of factors contribute to the excessive cost of living, including housing costs, taxes on products and services, reductions in subsidies, stagnating income levels, consumer preferences and behaviours, expenditures associated with healthcare and education, and reliance on imported commodities. Malaysians’ money allocation for food is the highest between all the other expenses. According to agricultural economist Prof. Datuk Dr. M Nasir Shamsudin, the country's reliance on food imports increased from RM51.4 billion in 2019 to RM55.4 billion in 2020, and the amount is predicted to rise (Izmir, 2022). For example, most of the foods consumed by citizens are imported goods which consumers need to bear excessive cost in obtaining it. By depending on imported goods, severed supply chain of imported goods may lead to price of goods increasing. Russian and Ukraine conflict affects a lot on imported goods around the world. In addition to being a significant producer of oil, Russia is a significant supplier of wheat, aluminium, palladium, nickel, and other commodities. Neon gas, which is used in the manufacturing of semiconductors, is one of the rare gases that Ukraine is essential to the world's supply (Russian-Ukraine Conflict Has Minimal Impact on Malaysia’s Exports: MIDF, 2022). Malaysia citizen consumes high quantity of wheat flour thus, the supply chain of wheat also affected because of Russian and Ukraine conflict. The severed supply chain reduced the quantity of wheat flour in the market and obviously the prices of wheat flour increased. After the pandemic, the government cut some of the subsidies that had been embossed during the pandemic. One of the subsidized services that was cut down is electricity for the higher income household. Other than that, the subsidized diesel will be cut down in the near future. Thus, the increase in commodity prices makes the cost of living increasing. Another factor of the high cost of living is the high inflation rate. Most of the goods and services price are affected by inflation after the pandemic. Costs are rising, making it harder for people and households to buy necessities (Izmir, 2022). The root of inflation is an imbalance of supply and demand. Demand may exceed supply for three main reasons: supply shocks, an increase in the money supply, and rising consumer expectations (Hicks, 2023). The supply chain was severely affected during the pandemic. In the recovery of economy after the pandemic, the price of the goods still remained high because of inflation. Pandemic made people saves more cash
because of limited access to any services outside their house. During post pandemic, people tend to spend more money than needed because they crave to experience many activities outdoor. This phenomenon causes the price increases and lead to inflation. Thus, cost of living increases. The third macroeconomic challenge is fiscal deficit. A fiscal deficit occurs when a government's revenue is less than its outlays. It is the discrepancy between the government's total revenue and its entire outlay of funds. Borrowings from the government cover this gap(Fiscal Deficit - Definition, What Is Fiscal Deficit, Advantages of Fiscal Deficit, and Latest News - ClearTax, 2024). During the pandemic, government spent a lot of money to reduce economic impact toward the nation. During the recovery of economic growth post pandemic, government also allocates big funds to aid the economic growth. According to Ministry of Finance Malaysia, the government would set aside RM58.1 billion to support several programmes, such as aid, incentives, and subsidies (Budget 2024 Highlights, 2024). For example, government spent millions of Ringgits for subsidizing goods and services. Many goods have been subsidized such as cooking oil, petrol, electricity, rice, eggs, healthcare and education. This action increased citizens’ expenses thus indirectly increase national GDP. Because of the epidemic, there was a decline in economic activity, a drop in tax revenue, and a decline in income from state-owned businesses. Many businesses were forced to stop or scale back operations during the pandemic. Additionally, fewer money was spent. As a result, there were fewer earnings for both enterprises and individuals, which decreased tax collections. Like many other nations, Malaysia's government gathered less revenue from taxes. The government collected less income tax and corporate tax because of more people losing their jobs and businesses making less money. The government received less revenue from sales taxes, such as Malaysia's Sales and Service Tax (SST), because of people spending less on products and services. Thus, the national revenue decreases due to the slowdown of economic activity. To conclude, Malaysia’s expenditure and revenue is not in balance in the recovery phase. More resources are flowed out rather than flowed in. This increases fiscal deficit.
Opportunities All admit that pandemic brought many disadvantages in economic growth but in the brighter light, pandemic also open many new opportunities to the world, especially in Malaysia. The first macroeconomic opportunity is greate-commerce growth and digitalization. As everyone knows, during the pandemic, people around the world were prohibited to go outside their house unless for emergency purposes. Going to the supermarket or mall is also prohibited. This phenomenon caused the e-commerce industry to bloom and grow bigger than it was before the pandemic. There were notable changes in the digital world during lockdowns and restrictions on movement as consumers adjusted to new circumstances. The effect of pandemic to the e-commerce industry is so big that in the post pandemic era, any individual prefers to shop online now rather than in physical stores. The habits of buying goods and services online leads to economic growth because individuals tend to spend vast amounts of money because they feel like the price of goods and services on e-commerce is cheaper than physical store. For example, Malaysian citizens surely prefer to use e-commerce platform such as Shopee, Tiktok Shop, Foodpanda and Grabfood in buying goods and services because of the price of goods is cheaper and it is convenient to used. Thus, consumption of goods and quantity of demand increases. The blooming of e-commerce industry also increases job opportunities and skill development. A diversified workforce is needed for e-commerce platforms, including customer service employees, digital marketers, and website developers. It helps in reducing the unemployment rate in the country in the post pandemic era and also enhances overall productivity. The expansion of e-commerce also generates a lot of jobs in delivery and logistics services in addition to technical and marketing positions. For example, there is a growing demand for delivery drivers, packers, and warehouse employees as more goods are offered online. These positions are necessary to guarantee that goods are delivered to clients promptly and undamaged. E-commerce also increased trade and export opportunities of the country. First off, foreign exchange earnings increase as a result. A positive balance of payments and a stronger national economy are supported by the valuable foreign money that Malaysian businesses bring in from
their increased export sales. It also encourages economic diversification. Malaysian companies can lessen their reliance on local demand and lower the risks brought on by regional economic downturns by expanding into foreign markets. Creating a diversified economy that is strong enough to absorb shocks from around the world requires all of this. In a nutshell, e-commerce impact toward economic growth is huge to the world, especially in Malaysia. The second macroeconomic opportunity is the opportunity in boosting domestic demand. This involves offering local customers more purchasing power and motivating them to purchase more products and services domestically Domestic demand is any amount of money that citizens, businesses, and the government of a particular country spend on products and services (Domestic Demand, 2024). One of the reasons domestic demand increases is the shift towards local products and services. Since the pandemic caused supply chain shortages, the imported goods are limited and pricy at the moment thus, consumers prefer to buy domestic goods in order to fulfil their necessities. This action occurred continuously even though pandemic has receded. Now, consumers realize that domestic goods and services are trusted and reliable the same as imported goods and services. The consumers’ trust has been boosting domestic demand ever since. For example, there is an increasing effort in Malaysia to promote small businesses, from grocery stores to retail establishments. Another factor why domestic demand growth is because of pent-up demand and high savings. Restrictions on travel and company operations during the epidemic resulted in lower spending on leisure activities like dining out and travel. Subsequently, most individuals have saved a big amount of money. This pent-up demand is expected to be released as constraints loosen, resulting in a spike in spending on previously inaccessible products and services. For example, many Malaysians were expected to save money during MCO because there was no outlet for them to spend their money for vacation, dining out or travelling. After pandemic, Malaysians are enjoying themselves by spending a lot of their saving money for vacation in the country. Other than that, Malaysia also accepted many international tourists after the pandemic. In the recent interview with The Sun, “In the first quarter of 2023, international arrivals reached 80% of pre-pandemic levels, with an estimated 235 million tourists travelling internationally. This figure more than doubled compared to the same period in 2022, indicating a resilient rebound.” which was said by Datuk Dr Ammar Abd Ghapar (Mahavera, 2023). The growth of Malaysia tourism industry made domestic
demand increased. In conclusion, there are several factors that increase domestic demand during the post-pandemic phase. The third macroeconomic opportunity is opportunity in healthcare innovation and telemedicine. The pandemic has highlighted how vital biotechnology and innovation in healthcare are. One of the factors that there is an opportunity in growing in healthcare innovation is increased in investment and funding. Throughout the epidemic, governments, businesses in the private sector, and investors have substantially raised financial support for biotechnology R&D and healthcare. It is anticipated that this pattern will carry on, encouraging creativity and the creation of new medications, vaccinations, and medical technology. Due to the pandemic's focus on these industries' potential for profit and social impact, both established businesses and startups were able to secure significant funding. Other than that, one of the healthcare innovations that everyone can experience during the pandemic that continuously happen is telemedicine. According to World Health Organization (WHO), telemedicine is the delivery of medical services across a distance which offers the opportunity to expand service coverage and enhance medical oversight (Consolidated Telemedicine Implementation Guide, 2022). Telemedicine allows individuals to communicate with healthcare providers virtually without having to make visits in person. Individuals can use tools like phone calls, mobile applications and video conferencing. For example, many individuals experience mental breakdowns and burnout during the pandemic. Those individuals need to reach out for help in order to have a stable mind, but the movement restrictions order makes them cannot meet psychiatrist. One of the telemedicine initiatives that been used during the pandemic is Mental Health Integration and Recovery (MENTARI). MENTARI provides teleconsultation services which is a remote consultation that conducted using phone calls, online chat etc. MENTARI also provide mental health screening, counselling and therapy. These services help individuals that struggle to get psychological treatment anywhere as long as there is existence of Internet connection. This initiative is still available after the pandemic to help people in need of psychological support and treatment. With regard to the telemedicine-based integration of mental health services into Malaysia's healthcare system, MENTARI is a major advancement.
This opportunity induced healthier populations that will contribute to economic growth. Healthier populations increase productivity. This enhances the economic growth for organization because high productivity workers exist. Besides, this opportunity also helps in reducing healthcare costs. Government can allocate lower budget for healthcare sector, and this reduces the expenditure of country. Thus, GDP will also increase.
Conclusion Major challenges brought about by the COVID-19 pandemic have an effect on Malaysia and the world economy. These issues include high unemployment rates, rising living expenses, and fiscal deficits. But it has also given rise to chances for growth and innovation. Digitalization and the quick rise of e-commerce are changing consumer behaviour and business strategies, opening up new markets and creating jobs. Increasing domestic demand can lessen dependency on foreign markets and offer a stable economic base. Furthermore, improvements in telemedicine and healthcare innovation offer greater accessibility to medical treatments as well as improved health results. By tackling these obstacles and seizing these chances, Malaysia and the global community can construct a more powerful and dynamic economy, guaranteeing sustainable and equitable growth in the aftermath of the epidemic.
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Consolidated Telemedicine Implementation Guide. (2022). WHO. Retrieved May 31, 2024, from https://www.who.int/publications/i/item/9789240059184 Izmir, N. (2022). Malaysia Needs to Respond to Rising Food Protectionism, Boost Agricultural Development. BERNAMA. https://bernama.com/en/news.php?id=2090367#:~:text=In%202020%2C%20Malaysia%20imported%20RM55,years%20(1987%2D2015). Rosenberg, D. (2022). Inflation Impact: Rising Prices Project Strength, but Too Much is Painful. Encyclopedia Britannica. https://www.britannica.com/money/what-is-inflation Russian-Ukraine Conflict has Minimal Impact on Malaysia’sExports: MIDF. (2022). TheSun. Retrieved May 19, 2024, from https://thesun.my/business/russian-ukraine-conflict-has-minimal-impact-on-malaysia-s-exports-midf-CB8892949 Yunus, R. (2022). Cost of Living Worsens with Covid-19. The Malaysian Reserve. Retrieved May 20, 2024, from https://themalaysianreserve.com/2021/03/22/cost-of-living-worsens-with-covid-19/ Chandiran, Y.D. (2020), 7 Well-Known Businesses in Malaysia That are Shutting Down Due To Covid-19, https://worldofbuzz.com/6-well-known-businesses-in-malaysia-that-shutting-down-due-to-covid-19/ OFILAC - Observatorio Fiscal del Latinoamerica y el Caribe. (n.d.). https://shorturl.at/pDDQG What is Fiscal Deficit? Definition of Fiscal Deficit, Fiscal Deficit Meaning - The Economic Times. (n.d.). https://economictimes.indiatimes.com/definition/fiscal-deficit
Appendix Figure 1: Unemployment Rate in Malaysia (International Labour Organization) 3.34.54.63.92019202020212022Unemployment RateUnemployment Rate