Responding to the COVID Economy: Part 1 – Understanding Supply and Demand Shocks

Media Statement by Dr. Ong Kian Ming, Member of Parliament for Bangi and Assistant Political Education Director for the Democratic Action Party (DAP) on the 25th of May, 2020

It has been more than 2 months since the 18th of March 2020, which was the start of the Movement Control Order (MCO) in Malaysia. The full extent of the negative economic impact domestically will not be known for a few months. But as we approach the 9th of June, 2020, and hopefully, the lifting of the Conditional Movement Control Order (MCMO), 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 COVID19 virus on the domestic and global economy, 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, increases to the cost of production and high inflation. Natural disasters such as the tsunamis in the Indian Ocean in 2004 and the tsunami in Japan in 2011 which led to the Fukushima Daiichi nuclear disaster can also cause localised supply shocks.

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