The Malaysian Economy: Issues and Prospects Malaysian Economy: Issues and Prospects ... Prolonged...
Transcript of 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
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
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
Source: Department of Statistics, Malaysia
8
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
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
Source: Department of Statistics, Malaysia
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
Source: Department of Statistics, Malaysia
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
Source: Department of Statistics, Malaysia
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
Source: Department of Statistics, Malaysia
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
Source: Bank Negara Malaysia
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
Source: Bank Negara Malaysia
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%
Source: Bank Negara Malaysia
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
Source: Department of Statistics, Malaysia and Bank Negara Malaysia
p preliminary f forecast
Services and manufacturing sectors to underpin growth
26
Domestic demand will continue to drive growth in 2015
Source: Department of Statistics, Malaysia and Bank Negara Malaysia
p preliminary f forecast
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
p preliminary f forecast
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%
p preliminary f forecast
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
Source: Bank Negara Malaysia
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
Source: Department of Statistics, Malaysia and Bank Negara Malaysia
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
Source: Department of Statistics, Malaysia and Bank Negara Malaysia
p preliminary f forecast
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
Source: Department of Statistics, Malaysia
p preliminary f forecast
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
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
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
Source: Department of Statistics, Malaysia and Bank Negara Malaysia
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
Source: Department of Statistics, Malaysia
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
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