The Malaysian Economy: Issues and Prospects Malaysian Economy: Issues and Prospects ... Prolonged...

1

The Malaysian Economy:

Issues and Prospects

Dr. Zarina Zainal Abidin

Economics Department

Bank Negara Malaysia

Presentation for Persidangan Akauntan Sektor Awam Kebangsaan Kali Ke-27

25 August 2015

2

Introduction

Presentation Outline

A

Characteristics of the Malaysian Economy

Role of Bank Negara Malaysia

Economic Prospects: Global and Domestic

Domestic Economy

Global Economy

Issues and Challenges in the Malaysian Economy

B

C

3

Introduction


A




Domestic Economy

Global Economy


B

C

4

BNM promotes monetary and financial stability to support a sustainable economic growth

Role of Bank Negara Malaysia:

1. Formulate and conduct monetary policy in Malaysia

2. Issuing of currency

3. Regulate and supervise financial institutions which are subject to the laws enforced by the

Bank

4. Regulate the money market and foreign exchange market

5. Exercise oversight over payment systems

6. Promote a sound, progressive and inclusive financial system

7. Hold and manage the foreign reserves of Malaysia

8. Promote an exchange rate regime that is in line with economic fundamentals

9. Act as the financial advisor to the government

Mandate of Bank Negara Malaysia

“…to promote stable monetary and financial conditions which is conducive

for sustainable economic growth…”

5

-1.5

7.4

6.0

-6

-4

-2

0

2

4

6

8

10

12

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

Key characteristics of the Malaysian economy (2014)

• Middle-income country: GDP per capita of

RM36,567 (USD10,223)

• Small open economy: Total goods and

services trade is 139% of GDP

• Domestic demand as anchor of economic

growth, mainly supported by the private

sector (51.8% of GDP)

• Services is the biggest production sector

(53.5% of GDP)

• Low inflation rate of 3.2% (average 1991-

2014: 3.0%)

Annual

Change, %

Global Financial Crisis

Average

2000-14: 5.1%

Source: Department of Statistics, Malaysia

Real GDP Growth

6

Malaysia is a small open economy

Source: IMF WEO (April 2015)

GDP Per Capita 2014 Total Goods Trade 2014

(% GDP)

0 10 20 30 40 50 60

Indonesia

Thailand

China

Malaysia

Korea

Japan

Hong Kong

UK

Germany

US

Singapore

‘000 USD/ year

0 100 200 300 400

US

Japan

Indonesia

China

Philippines

Ireland

Korea

C. Taipei

Thailand

Malaysia

Singapore

Hong Kong

% KDNK

7

GDP as a measure of economic performance

Supply (2014) 2

Manufacturing

23%

Agriculture

9%

Mining

9%

Construction

4%

Services

54%

Net Exports

9%

Private Investment

17%

Public Investment

10%

Private

Consumption

52%

Public

Consumption

14%

Demand (2014) 1


8

Introduction


A




Domestic Economy

Global Economy


B

C

9

• Divergence of growth momentum

across major economies

• Continued economic recovery in the

US and the UK

• Economic activity improved modestly

in the euro area and Japan

• Growth in Asia continues to be

supported by an expansion in

domestic demand

Global Growth

p Preliminary estimate a Advance estimate r Revised

Source: National authorities

2014 2015

1Q 2Q

Annual change (yoy, %)

Advanced economies

US 2.4 2.9r 2.3a

UK 3.0 2.9r 2.6p

Euro area 0.9 1.0 n.a

Japan -0.1 -0.9 n.a

Asian economies

PR China 7.4 7.0 7.0

Chinese Taipei 3.8 3.4 0.6a

Indonesia 5.0 4.7 4.7

Korea 3.3 2.5 2.2a

Singapore 2.9 2.8r 1.8p

Moderate global growth in 2Q 2015

10


Real GDP growth

Real GDP

The Malaysian economy expanded by 4.9% in 2Q 2015

6.5

5.6 5.7 5.6

4.9

0

1

2

3

4

5

6

7

180

190

200

210

220

230

240

250

260

270

280

290

300

1Q2013

2Q 3Q 4Q 1Q2014

2Q 3Q 4Q 1Q2015

2Q

RM bn (2010 =100) Annual change (%)

11

Growth supported by continued expansion in services and turnaround in agricultural production

1 Numbers do not add up due to rounding and exclusion of import duties component


Real GDP

(Annual change, %)

Real

share, %

(2014)

2014 2015

2Q 1H 1Q 2Q 1H

Services 53.5 6.4 6.5 6.4 5.0 5.7

Manufacturing 23.0 7.3 7.2 5.6 4.2 4.9

Mining 9.0 2.1 1.0 9.6 6.0 7.8

Agriculture 9.2 6.7 4.6 -4.7 4.6 0.0

Construction 4.3 10.0 14.5 9.7 5.6 7.7

GDP 100.0 6.5 6.4 5.6 4.9 5.3

• Services: Continued expansion amid

slower growth particularly in

consumption-related sub-sectors

• Agriculture: Turned around amid

higher production of palm oil

• Construction: Lower growth due to

moderation in residential, non-

residential and civil engineering sub-

sectors

• Manufacturing: Slower performance

in export- oriented industries

• Mining: Growth affected by lower

production of natural gas

12


Real GDP

(Annual change, %)

Share,

%

(2014)

2014 2015

2Q 1Q 2Q 1H

Domestic demand

(excluding stocks) 91.5 5.6 7.9 4.6 6.2

Private Sector 68.5 7.9 9.6 5.7 7.6

Consumption 51.8 6.5 8.8 6.4 7.6

Investment 16.6 11.6 11.7 3.9 7.5

Public Sector 23.0 -1.4 2.5 0.9 1.7

Consumption 13.6 -0.2 4.1 6.8 5.5

Investment 9.5 -3.2 0.5 -8.0 -3.7

Net exports of goods

and services 9.3 51.7 -10.2 -10.5 -10.4

Exports 76.1 8.7 -0.6 -3.7 -2.2

Imports 66.8 4.5 1.0 -2.8 -0.9

Change in stocks

(RM billion) -0.8 -2.1 -2.5 2.2 -0.3

GDP (y-o-y) 100.0 6.5 5.6 4.9 5.3

GDP (q-o-q growth,

seasonally adjusted) - 1.6 1.2 1.1 -

Private sector remained the anchor of growth

Public investment Public consumption

Private investment Private consumption

Net exports Change in stocks

GDP growth:

6.5% 6.3% 5.6% 5.7% 4.9% 5.6%

3.3

0.8 0.8

-0.7 -1.0

1.7

-4

-2

0

2

4

6

8

10

12

1Q 14 2Q 14 3Q 14 4Q 14 1Q 15 2Q 15

Ppt. contribution

13

Current account balance narrowed, but remained positive in 2Q 2015


Malaysia’s current account balance

-9

-6

-3

0

3

6

9

12

-30

-20

-10

0

10

20

30

40

3Q 12 4Q 12 1Q 13 2Q 13 3Q 13 4Q 13 1Q 14 2Q 14 3Q 14 4Q14 1Q15 2Q15

Goods Services Primary income Secondary income CAB % of GNI (RHS)

RM bn % of GNI

Current account balance (RHS)

14

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

2012 2013 2014 2015

Core inflation Non-core inflation

Headline inflation

Headline inflation edged higher in 2Q 2015, but underlying inflation remained stable

Category Weight 1Q ‘15 2Q ‘15

Annual growth, %

Headline inflation 100.0 0.7 2.2

Food and non-alcoholic

beverages 30.3 2.5 3.3

Housing, water,

electricity, gas and

other fuels

22.6 2.1 2.5

Transport 14.9 -7.6 -3.6

Communication 5.6 -1.0 2.5

Recreation services

and culture 4.6 0.6 1.6

Furnishings and

household equipment &

maintenance

4.1 0.3 2.7

Others 17.9 3.4 4.7

Increase in inflation was broad-based

due to the implementation of GST Nevertheless, underlying inflation remained stable

Annual change (%)

Source: Department of Statistics Malaysia and Bank Negara

Malaysia

Note: Core inflation excludes price-administered and price volatile

items. It also excludes the impact of GST. Source: Department of Statistics Malaysia and Bank Negara Malaysia

15

Higher external debt in 2Q 2015 partly due to valuation

effects, but impact is contained

2Q 2015: RM419.9 billion

744.3 747.5 768.1

794.3

400

500

600

700

800

-30

-20

-10

0

10

20

30

40

50

60

3Q 2014 4Q 2014 1Q 2015 2Q 2015

RM bn RM bn

Revaluation changes

Changes in external debt, excluding revaluation changes

Total external debt (RHS)

Quarterly Change (RM bn):

14.0 3.2 20.7 26.2

Higher valuation effects in recent quarter 46% of offshore borrowings are accounted by

banks due to their regional operations

Banks

45.6%

Federal Govt.

4.5%

Public Enterprise

24.0%

Non-bank private sector

25.9%

Source: Bank Negara Malaysia

1 Public enterprise and non-bank private sector


16

Long-term external

debt 57%

Interbank borrowing

19%

NR deposit 12%

Money market

instrument 3%

Others 9%

Oil

revenue,

30%

Short term external debt has limited immediate claim on reserves

The banking sector exposures are

partly covered by corresponding

external assets

Other debt liabilities reflect trade

related and direct investment

activities

• Trade credit largely supported by

export earnings

• Intercompany loans are generally

on concessionary and flexible

terms

Short-term

external debt

43%

2

1

Short term external debt remains manageable

2

1


17

-21.6

-20.1

-16.8

-16.7

-13.8

-13.6

-10.7

-9.5

-6.4

-6.1

-5.7

-4.8

-2.8

-25 -20 -15 -10 -5 0

AUD

MYR

JPY

EUR

IDR

KRW

SGD

THB

TWD

GBP

INR

PHP

CNY

% change

All major and regional currencies have

depreciated due to persistent US dollar strength • Improving US economy and expectation of higher interest rate in the US continued to put downward

pressure on currencies globally

Source: BNM, Staff calculations

*USD Index is a trade-weighted index that tracks USD performance against top 10

leading global currencies.

Source: BNM, Bloomberg

95

100

105

110

115

120

125

130

75

80

85

90

95

100

105

Ja

n-1

3

Apr-

13

Ju

l-1

3

Oct-

13

Ja

n-1

4

Apr-

14

Ju

l-1

4

Oct-

14

Ja

n-1

5

Apr-

15

Ju

l-1

5USD Index (RHS)*

Index

(Jan. 13=100)

MYR

ASEAN 5

(ex MYR)

+22% since

Jul ‘14

↑ appreciation

Index

(Jan. 13=100)

Performance of Ringgit and

Regional Currencies against USD

Performance of Selected Currencies

against the USD (1 Sept ‘14- 11 Aug ‘15)

18

Note: Of note, countries with higher dependence on commodity exports have faced

larger adjustments.

Source: Bloomberg, BNM

Prolonged low crude oil prices since Jul

‘14 continue to put downward pressure

on the ringgit

Other currencies of commodity exporting

countries have depreciated significantly

Source: Bloomberg, BNM

Declining commodity prices and domestic factors

contributing to additional pressure on ringgit

-41.1

-35.0

-24.4

-21.6

-20.8

-20.5

-20.1

-18.6

-16.4

-16.2

-15.7

-50 -40 -30 -20 -10 0

Russia

Brazil

Norway

Australia

New Zealand

Algeria

Malaysia

Nigeria

Canada

Uruguay

South Africa

% change

Performance of Selected Currencies

against the USD (1 Sept ‘14- 11 Aug ‘15)

40

50

60

70

80

90

100

110

1203.1

3.2

3.3

3.4

3.5

3.6

3.7

3.8

3.9

4.0

Jun-1

4

Jul-1

4

Aug-1

4

Sep-1

4

Oct-

14

No

v-1

4

De

c-1

4

Jan-1

5

Feb

-15

Ma

r-1

5

Apr-

15

Ma

y-1

5

Jun-1

5

Jul-1

5

Aug-1

5

MYR/USD USD/barrel

BRENT (RHS)

MYR

↑ appreciation in MYR

Performance of MYR/USD vs. Brent Crude

19

Impact of ringgit depreciation is manageable

• Businesses with high import content face higher costs, but export-oriented

businesses will benefit from higher proceeds

• Modest impact on household spending

• Low global commodity and domestic fuel prices cushion inflationary

pressures

• BNM will continue to ensure the orderly functioning of the market to avoid

disruptions to trade and business activities

20

Movements in the exchange rate and reserves are expected in a flexible exchange rate regime

Source: BNM

2.8

3.0

3.2

3.4

3.6

3.8

4.00

20

40

60

80

100

120

140

160

Jan-0

5

Jun-0

5

No

v-0

5

Apr-

06

Sep-0

6

Feb

-07

Jul-0

7

De

c-0

7

Ma

y-0

8

Oct-

08

Ma

r-0

9

Aug-0

9

Jan-1

0

Jun-1

0

No

v-1

0

Apr-

11

Sep-1

1

Feb

-12

Jul-1

2

De

c-1

2

Ma

y-1

3

Oct-

13

Ma

r-1

4

Aug-1

4

Jan-1

5

Jun-1

5

International Reserves, USD USDMYR

USD billion MYR/USD

Reserves as

at 31 Jul:

USD96.7 bn

GFC

Recent MYR (RHS)

↑ MYR

appreciation

International Reserves vs MYR/USD

• Exchange rate being the absorber to

shocks will be subjected to volatility

from time to time.

• International reserves have dipped

below USD100bn before. This has

been anticipated and is a an

outcome when facing sharp capital

reversal.

• International reserves lower but

remain ample to facilitate

international transactions.

21

2.0

1,637

800

1000

1200

1400

1600

1800

2000

0.0

0.4

0.8

1.2

1.6

2.0

2.4

2.8

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

Daily Avg Trading

KLCI (RHS)

Daily Avg Trading and KLCI Index

Liquidity remains stable in the Govt bond

market…

Despite ringgit adjustments, conditions in the domestic financial markets remain orderly

Monthly Avg Trading of Govt Bonds and

5-year MGS Yield

Source: Bank Negara Malaysia Source: Bursa Malaysia

66.0

3.9

2.0

3.0

4.0

5.0

0

10

20

30

40

50

60

70

80

200

9

201

0

201

1

201

2

201

3

201

4

201

5

Monthly Avg Trading

5-year MGS yield (RHS)

RM billion RM billion % Index

…while trading remains steady in the equity

market

Avg. (2005-recent): RM1.6 bn

Avg. (2009-recent): RM50 bn

22

243 247 256

300 282 281

302 310

282 290

100

150

200

250

300

350

400

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

2013 2014 2015

Loans Disbursed Gross PDS Issued* Equity

Financing remained supportive of economic

activity Relatively stable total loans growth amidst

continued strong growth in SME loans …

Net Financing1 and Outstanding Banking

System Loans Growth

1Outstanding loans of the banking system and PDS outstanding *Excludes issuances by Cagamas

Gross Financing through the Banking System

and Capital Market Annual

change (%) RM billion

4

8

12

16

20

4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

2012 2013 2014 2015

… with sustained gross financing to the

private sector

Total loan

growth: 9.1%

Net financing

growth: 8.3%

SME loan

growth: 17.2%


23

Global growth to remain moderate in 2015

5.4

4.1

3.4 3.3 3.3 3.5

0

1

2

3

4

5

6

7

8

2010 2011 2012 2013 2014e 2015f

Annual change (%)

Emerging

Economies

Advanced

Economies

L

Real GDP Growth

Global

• Global economy to remain on a moderate growth

path in 2015, supported by:

- Improving fundamentals, particularly in the US

- Lower commodity prices

- Accommodative monetary policies

• Growth performance in the major economies to

become more divergent

- US: Strengthening private sector activity

- Euro area & Japan: Subdued growth amid

persistent structural weaknesses

- PR China: Growth to moderate, in line with

policymakers’ objective to rebalance the economy

- Asia: Growth to improve, supported by higher

domestic demand and exports

Source: IMF and Bank Negara Malaysia estimates

24

The Malaysian economy to remain on a steady growth path of 4.5 – 5.5% in 2015

• Domestic demand will continue to drive

growth, led by private sector spending

• All economic sectors to experience

continued expansion

• External sector to remain resilient

L

-2

-1

0

1

2

3

4

5

6

7

8

2008 2009 2010 2011 2012 2013 2014p

Annual change (%)

5.5

4.5

6.0

Despite external shocks, growth to remain on steady trajectory amid strong

underlying fundamentals

Source: Department of Statistics, Malaysia and Bank Negara Malaysia

p preliminary f forecast

25

Real GDP

Annual change (%)

% share

of GDP

(2014) 2014p 2015f

Services 55.3 6.3 5.6

Manufacturing 24.6 6.2 4.9

Mining 7.9 3.1 3.0

Agriculture 6.9 2.6 0.3

Construction 3.9 11.6 10.3

Real GDP 100.01 6.0 4.5 – 5.5

Continued expansion across all economic sectors

• Services

- Supported by consumption- and

trade-related sub-sectors

• Manufacturing

- Continued growth in electronics and

electrical (E&E) sector

• Mining

- Rising oil production

• Agriculture

- Lower production of palm oil and rubber

amid lower prices

• Construction

- Driven by activity in residential and

non-residential sub-sectors

1 Numbers do not add up due to rounding and exclusion of import duties



Services and manufacturing sectors to underpin growth

26

Domestic demand will continue to drive growth in 2015



Real GDP

Annual change (%)

% share of

GDP (2014) 2014p 2015f

Domestic demand

(excluding stocks) 93.1 6.0 6.0

Private expenditure 70.0 8.0 6.7

Private consumption 52.5 7.1 6.0

Private investment 17.5 11.0 9.0

Public expenditure 23.0 0.2 3.7

Public consumption 13.2 4.4 2.7

Public investment 9.8 -4.9 5.1

Gross Fixed Capital Formation 27.3 4.7 7.6

Net exports of Goods

& Services 8.0 19.7 -7.8

Exports of Goods & Services 88.8 5.1 3.0

Imports of Goods & Services 80.8 3.9 4.0

Real GDP 100.0 6.0 4.5 – 5.5

27

7.5

5.2

0.5 0.3

0

2

4

6

8

10

12

14

2015f

Real private consumption

6.0

8.8

5

6

7

8

9

10

201

1

201

2

201

3

201

4p

201

5f

1Q

-15

Annual change (%)

Unemployment and salary Government measures and savings

RM bil

While growth is affected by GST

and lower earnings in commodity

sectors…

…it remains supported by

stable labour market conditions

and continued growth in salary…

…and additional income from

Gov’t measures and savings

from lower fuel prices

Private consumption is projected to grow by 6.0% in 2015

Avg. (‘90-’14): 6.7%

Note: * Disbursed to primary and secondary school students; Source: Department of Statistics, Malaysia, MEF Salary Survey, Bank Negara Malaysia


Bantuan Rakyat

1Malaysia (BR1M)

Savings from

lower fuel

prices

RM 100 cash assistance program*

Baucar Buku

1Malaysia (BB1M)

2.8 2.9

5.4 5.8

2.9 3.0

2

3

4

5

0

1

2

3

4

5

6

7

2013 2014p 2015f

Annual change (%) % share of

labour force

Salary increment

Unemployment rate (RHS)

Employment growth

13.5

28

Private investment to be supported by a steady flow of projects

9.4

22.8

13.1

11.0

9.0

11.7

0

5

10

15

20

25

201

1

201

2

201

3

201

4p

201

5f

1Q

-15

Source: Department of Statistics, Malaysia, Malaysian Investment Development Authority (MIDA) and Bank Negara Malaysia

Avg. (‘90-’14): 8.5%


Private investment to expand

by 9.0%...

58%

64%

42%

36% 52.1

71.9

0

20

40

60

80

2013 2014

Domestic-oriented

Export-oriented

Record-high manufacturing

investment approvals point

to sustained investment

RM bil

Private (64%)

Services

Agriculture

Manufacturing

Mining

Construction

% share of

real GFCF

Public

(36%)

% share of real private

investment (sector)

3 5

16

51

26

…driven mainly by investment in the

manufacturing and services sectors

Annual change (%)

29

Share of GFCF by Sector

Debunking myths about investment in Malaysia JEK

Myth #2: Most investment is in the property sector

Fact: In 2014, investment in residential property only

accounted for 17% of private investment

Myth #3: Capital spending is concentrated in the

oil and gas industry

Fact: The mining sector only accounted for 16% of

private investment in 2014

Myth #4: Private investment in Malaysia is

undertaken mainly by foreign entities

Fact: In 2014, 81% of private investment was

undertaken by Malaysian firms. Only 19% comprised

of FDI (2007: 35%).

Several misconceptions have surfaced surrounding Malaysia’s strong

private investment growth since 2010

Myth #1: Strong performance driven by

Government & Government-linked enterprises

Fact: In 2014, public sector investment only

accounted for 36% of total investment.

Private

Investment

64%

Public

Investment

36%

Public

Enterprises

72%

General

Government

28%

Source: DOSM, BNM estimates

(Please refer to BNM 2014 Annual Report Box Article: Debunking Malaysia’s Investment Myths, pg 21-22)

30

Financing continues to be supportive of economic activity

151 184 220 232 239

0

300

600

900

1200

201

0

201

1

201

2

201

3

201

4

Funds Raised via Capital Markets

Loan Disbursements by the Banking System and DFIs

Loans Disbursed by the Banking Systen and DFIs to SMEs

RM billion

986

763 847

984

Gross Financing through Loans

and the Capital Markets*

• Going forward, financing activity is expected to

remain robust

- Continued availability of financing for businesses,

especially for SMEs from the banking system and the

DFIs

- Funds raised from the capital market to remain high

given committed investment projects in the pipeline

• Supported by ample liquidity conditions

- Outstanding surplus liquidity with BNM remains high

at RM269.9 billion in 2014

1,107

*Comprises gross loans from the banking system and DFIs, and gross funds raised from the capital markets


31

Headline inflation to range between 2 – 3% in 2015

• Lower inflation reflects the decline in global energy and

commodity prices

• Lower domestic fuel prices and moderate demand

conditions would partly offset the impact from GST

• Households will benefit through higher disposable

income from lower fuel prices


0

1

2

3

4

5

6

2008 2009 2010 2011 2012 2013 2014 2015f

Annual change (%)

Inflation forecast

3.0

3.2

2.0

Historical avg.

(1991-2014) = 3%

32

Trade balance to remain in substantial surplus amid more moderate export growth



Malaysia’s Trade Performance Trade

Annual change (%) % share

(2014) 2014p 2015f

Gross exports 100.0 6.4 1.5

Manufactured 76.9 7.3 8.4

E&E 37.3 8.4 14.1

Non-E&E 39.6 6.3 3.0

Commodities 22.7 4.5 -22.6

Agriculture 9.0 0.6 -10.8

Minerals 13.7 7.3 -30.4

Gross imports 100.0 5.3 6.0

Capital goods 14.1 -2.1 10.0

Intermediate goods 59.8 7.6 6.8

Consumption goods 7.4 5.7 6.8

Manufactured exports to benefit from improvement in major advanced economies

83.1

53.6

40

50

60

70

80

90

100

110

120

130

200

300

400

500

600

700

800

900

201

0

201

1

201

2

201

3

201

4p

201

5f

Exports Imports Trade Balance (RHS)

RM bil RM bil

33

Current account surplus to remain in 2015



Current account

component (net)

2014p 2015f

RM billion

Goods 125.1 94.2

Services -20.5 -16.4

Primary income -37.4 -38.0

Secondary income -17.6 -18.5

Current account balance 49.5 21.4

% of GNI 4.8 2 – 3

The narrowing of the current account surplus to 2 – 3% of GNI is consistent with

global rebalancing and structural transformation in the domestic economy

15.1

17.6

4.8 2-3

-12

-8

-4

0

4

8

12

16

20

24

-100

-50

0

50

100

150

200

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4p

201

5f

Goods Services

Primary income Secondary income

% of GNI (RHS)

RM bil % of GNI Current Account Balance

34 34

Introduction


A




Domestic Economy

Global Economy


B

C

35

Issues and challenges in the Malaysian economy

Global uncertainty 1 Commodity price

movements 2 Policy adjustments 3

Key issues and challenges confronting the Malaysian economy

• Prolonged weakness in

several major economies

• Uncertainties over monetary

policy adjustments

• Uncertainty over the prices

and persistence of

disinflation or deflation in

several major economies

• Expenditure reforms such

as subsidy rationalisation

• GST implementation to

broaden the revenue base

Malaysia has the policies and buffers to

weather these challenges

Ample reserves with a wide

range of monetary policy

instruments

Diversified economic

structure

Resilient economic

fundamentals to

support growth

36

2637 2401

520

1020

1520

2020

2520

3020

1Q

2010

3Q

2010

1Q

2011

3Q

2011

1Q

2012

3Q

2012

1Q

2013

3Q

2013

1Q

2014

3Q

2014

1Q

2015

2,880

2,507

2,135

1,5001,7001,9002,1002,3002,5002,7002,9003,100

02

-Jan

-14

01

-Fe

b-1

4

03

-Mar-

14

02

-Apr-

14

02

-May-1

4

01

-Jun

-14

01

-Jul-

14

31

-Jul-

14

30

-Aug

-14

29

-Sep

-14

29

-Oct-

14

28

-Nov-1

4

28

-Dec-1

4

27

-Jan

-15

26

-Fe

b-1

5

28

-Mar-

15

27

-Apr-

15

27

-May-1

5

1683

702

543

0

500

1000

1500

2000

Jan-1

0

Jun-1

0

No

v-1

0

Apr-

11

Sep-1

1

Feb

-12

Jul-1

2

De

c-1

2

Ma

y-1

3

Oct-

13

Ma

r-1

4

Aug-1

4

Jan-1

5

CPO

115

64

20

40

60

80

100

120

02

-Jan

-14

01

-Fe

b-1

4

03

-Mar-

14

02

-Apr-

14

02

-May-1

4

01

-Jun

-14

01

-Jul-

14

31

-Jul-

14

30

-Aug

-14

29

-Sep

-14

29

-Oct-

14

28

-Nov-1

4

28

-Dec-1

4

27

-Jan

-15

26

-Fe

b-1

5

28

-Mar-

15

27

-Apr-

15

27

-May-1

5

Sharp decline in commodity prices Declining crude oil prices since June 2014

due to oversupply conditions

Moderate prices in 1H 2014

due to lower oil prices

Moderate prices in 1H 2014 due to weak demand

amid lower oil prices

Lower rubber prices due to oversupply

from Thailand

USD per barrel RM/tonne

RM/tonne Sen/kg Rubber

Brent Crude LNG

Sumber: MPOB, Bloomberg, Malaysian Rubber Board, MATRADE, DOSM

-15%

-44%

-9%

-23%

37 37

The diversity of the economy will cushion the impact of lower oil prices

Manufactured

goods, 77%

Commodity

exports, 23% Others,

78%

Mining,

19%

Agri.,

3%

Oil

revenue,

30%

Note: All data reflect 2014 figures, except for investment which reflect 2013 figures

Source: Department of Statistics, Malaysia and BNM

59 70

41 30

0

20

40

60

80

100

2009 2014

Oil revenue Other sources

% share Fiscal Revenue

Commodity,

22%

Commodity sector only accounts

for 15% of real GDP

Oil revenue on a declining

trend since 2009

Only 13% of employment is in the

commodity sector

More than three-quarters of investment

undertaken in non-commodity sectors

Commodity exports account for

only 23% of gross exports

Commodity,

15%

Others, 85%

Mining, 8%

CPO, 3%

Rubber, 0.4%

Other Agri.,

4%

Others, 87%

Mining, 1%

CPO, 5%

Rubber, 3%

Commodity,

13%

Other Agri.,

5%

38

Fiscal consolidation will remain on course despite low oil prices

Dependency on oil revenue has

declined

Expenditure reforms is underpinned by

the removal of the fuel subsidy, which

will reduce the operating expenditure

GST implementation will broaden the

revenue base

1

2

3

-3.1

-4.6

-6.7

-5.4 -4.8

-4.5 -3.9

-3.5 -3.2

-8

-7

-6

-5

-4

-3

-2

-1

0

-80

-70

-60

-50

-40

-30

-20

-10

0

2007 2008 2009 2010 2011 2012 2013 2014 2015e

% of GDP RM billion Federal Government Fiscal Balance

RM billion

e latest estimate reflecting Prime Minister’s speech on 20 Jan 2015

Source: Ministry of Finance, Malaysia

39 39

Subsidy rationalisation replaces regressive blanket subsidies with targeted measures

Share of Fuel Subsidy Received by Each Income Group

Benefits of fuel subsidy in Malaysia are enjoyed disproportionately by higher-income households

Source: Household Expenditure Survey 2009/10 and Household Income and Basic Amenities Surveys 2009 and 2012, DOSM and BNM estimates

(Please refer to BNM 2014 Annual Report Box Article: Price Reforms: Motivation, Impact and Mitigating Measures, pg 86-91)

40

55.5

103.8

11.8

15.2

0

10

20

0

50

100

150

1998 2014

Size of Bond Market

Capital Ratio* (RHS)

Malaysia’s macroeconomic fundamentals remain supportive of growth

60.4 60.7

68.8 70.0

50

60

70

80

2008 2010 2012 2014p

% share

3.3

3.7

3.1

2.9 2.5

3.0

3.5

4.0

2008 2010 2012 2014p

%

5.4

0.6 2.1

3.2

0

4

8

2008 2010 2012 2014

Annual

change (%)

Steady growth path High private sector

participation in the economy

Low and stable

inflation environment

Stable labour market conditions

Deeper markets and

strong financial buffers

4.8

-1.5

4.7 6.0

-4

0

4

8

12

2008 2010 2012 2014p

Current account balance

reflects strong investment

17.6 15.8

4.2 4.8

0

10

20

30

2008 2010 2012 2014p

Annual

change (%)

% of GNI


Current account balance Inflation

GDP Private expenditure / GDP Unemployment rate

% of nominal GDP

Size of Bond Market

and Banking Capital Ratio

%

* Capital ratio in ‘98 refers to the risk-weighted capital ratio; Ratio in 2014 refers to total capital ratio, reported based on Basel III

Capital Adequacy Framework adopted since January 2013.

41

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

46.0

48.0

50.0

52.0

54.0

56.0

58.0

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

Going forward, leading indicators suggest sustained expansion in economic activity

Global and US ISM Manufacturing PMI

Source: Bloomberg

Index

Domestic Fundamentals

Average wage refers to wage per employee in the

manufacturing sectors


MIDA Manufacturing Investment Approvals

Annual change (%) RM billion

0

5

10

15

20

25

30

35

40

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

Global manufacturing activity

remains expansionary

Sustained domestic

fundamental indicators

Planned investment by the

private sector remains firm

Source: MIDA

>50 = expansionary

Global PMI

US ISM Mfg. PMI

Annual change (%)

Inflation growth (RHS)

Average

wage growth

42 42

• The global economy to improve at a moderate pace

− Modest growth in the advanced economies

− Steady growth momentum in the regional economies

• The Malaysian economy will remain resilient in the face of

the challenging environment

− Strong domestic and external fundamentals

Low inflation, steady income growth and stable labour market conditions

Flexible exchange rate, low external debt and ample international reserves

− Impact of ringgit depreciation on growth and inflation is contained, underpinned by

the diversified Malaysian economy

− Domestic financial stability conditions is sustained despite increased volatility

in financial markets

The Malaysian economy is expected to remain on a

steady growth path

43

Questions and Answer [email protected]

The Malaysian Economy: Issues and Prospects Malaysian Economy: Issues and Prospects ... Prolonged...

Documents

Transcript of The Malaysian Economy: Issues and Prospects Malaysian Economy: Issues and Prospects ... Prolonged...