BNM Annual Report 2010 & Financial Stability and Payment Systems Report 2010 Briefing to Analysts & Fund Managers by Dato' Muhammad bin Ibrahim Deputy Governor 23 March 2011 1
Briefing to cover: • Economic and financial developments in 2010 • Prospects for 2011 • Policy Direction 2
Malaysian economy expanded strongly by 7.2% in 2010 • Growth driven mainly by robust Annual change (%) 2009 2010 p domestic demand and primarily by private sector activity Domestic demand -0.5 6.3 Private consumption 0.7 6.6 • Public sector continued to play a Public consumption 3.1 0.1 crucial role in supporting the domestic economy in 2010 Gross fixed capital formation -5.6 9.4 Private investment -17.2 13.8 • External demand, which Public investment 8.0 5.5 rebounded strongly in the first Net exports 5.0 -24.2 half of the year, moderated in the second half-year in tandem Exports of G&S -10.4 9.8 with the moderation in global Imports of G&S -12.3 14.7 trade Real GDP -1.7 7.2 p preliminary Source: Department of Statistics, Malaysia 3
Strong growth in all sectors, in line with the robust domestic demand and rebound in exports Annual change (%) 2009 2010 p Agriculture 0.4 1.7 Mining -3.8 0.2 Manufacturing -9.4 11.4 Construction 5.8 5.2 Services 2.6 6.8 Real GDP -1.7 7.2 p preliminary Source: Department of Statistics, Malaysia 4
Overall balance of payments remained strong in 2010 2009 2010 p RM billion Current Account 112.1 90.5 • Current account surplus narrowed % of GNI 17.5 12.2 to 12.2% of GNI Goods 141.7 136.6 Services 4.7 0.9 • Financial account recorded Income -14.6 -25.2 smaller net outflow due to higher Capital Account -0.2 -0.2 portfolio and FDI inflows Financial Account -80.2 -21.9 -15.0 Direct Investment -22.9 • Reserves remained high at In Malaysia 5.0 27.6 USD110.4 billion at 15 March Abroad -27.9 -42.6 2011 Portfolio Investment -1.7 44.9 Financial Derivatives 2.5 -0.8 Other Investment -58.1 -51.1 E & O -17.9 -71.1 Rev. Gain (+)/Loss (-) 10.7 -32.6 Overall Balance 13.8 -2.6 331.3 328.6 Reserves (USD billion equivalent) 96.7 106.5 p preliminary Source: Department of Statistics, Malaysia … negligible e/ estimate 5
Higher foreign direct investment and direct investment abroad in 2010 • Higher FDI inflows RM billion - Improved global and 55 domestic economic Net conditions DIA 45 - Better corporate earnings Net 35 FDI • Direct investment abroad (DIA) was also higher 25 - Malaysian companies 15 continued to tap profitable opportunities in other 5 regions - Outflows into services, oil -5 2008 2009 2010p and gas and manufacturing p preliminary Source: Department of Statistics, Malaysia … negligible e/ estimate 6
The rise of economic integration in East Asia has benefited Malaysia through trade and investment channels East Asia is now Malaysia’s main Almost half of investment abroad by export market Malaysian companies is in Asia Malaysia’s Gross Exports: Composition of Major Export Markets Cumulative Net DIA Flows by Sector % 2008 – 2010 (RM120.8 billion) 60 1980 Asian NIEs, 3.1% 50 2000 Other Asian countries, 13.5% 2010 Others 40 33% Indonesia Asia 15% 43% 30 Australia Singapore 13% 20 18% 10 United Kingdom Euro Area 5% 0 6% East Asia Advanced Rest of the World economies Source: BNM Annual Report 2010, White Box: Rise of Economic Integration in East Asia: The Malaysian Perspective 7
External debt remained low • External debt declined to end-Dec end-Dec RM226.3 billion (equivalent 2009 2010 to 30.2% of GNI) RM billion Total External Debt 233.1 226.3 • Lower medium- and long- term debt due to: (USD bn equiv.) 67.4 72.6 - revaluation gains Medium- and long-term 155.4 146.9 following appreciation of Short-term 77.8 79.4 ringgit and; % - net repayment position of External Debt/GNI 35.1 30.2 the private sector Short-Term Debt /Reserves 23.5 24.2 • Short-term debt increased but remains manageable Source: Ministry of Finance, Malaysia and Bank Negara Malaysia … negligible e/ estimate 8
Labour market conditions improved in 2010 following strong gains in employment Higher net job creation & lower unemployment While retrenchments declined significantly rate in 2010 No. of jobs ('000) % of labour Person (‘000) force 3.7 30 300 4 3.3 3.2 250 25 3 3.2 200 20 150 2 15 239 100 10 179 153 1 50 5 44 0 0 0 2007 2008 2009 2010e 2007 2008 2009 2010 Total retrenchments Mfg Non-mfg Net job creation Unemployment rate (RHS) Source: Economic Planning Unit and Ministry of Human Resources 9
Inflation was modest in 2010 • Inflation edged to 1.7% in 2010 (2009: 0.6%), reflecting increases in the food and transport Malaysia CPI, % Contribution to Inflation Annual growth, % Clothing & footwear 2009 20 Communication 2010 15 Health Furnishings & household eq. Supply- 10 related Education inflation 5 Restaurants & hotels Core inflation Recreation serv & culture 0 Alco bev & tobacco Headline inflation Misc. goods & services -5 Housing, water, elec, gas -10 Transport Food & non-alco bev -15 Oct-07 Oct-08 Oct-09 Oct-10 Jul-07 Jul-08 Jul-09 Jul-10 Jan-08 Apr-08 Jan-09 Apr-09 Jan-10 Apr-10 All Items -2 -1 0 1 2 percentage points 10
Financing conditions expected to remain favourable …supported by robust demand for Net financing growth sustained… loans from businesses and households Total Financing Loans Applications by Businesses and Households Annual change (%) RM billion 15 100 Loan growth: 12.7% Businesses 90 Households 12 80 Net financing 70 9 growth: 11.3% 60 6 50 40 3 30 May-09 May-10 Jan-09 Mar-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 Jul-10 Sep-10 Nov-10 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 11
Domestic equity market had sustained growth in line with regional trends Performance of Major Indices KLCI and Bursa Malaysia Index (Jan (% growth) sectoral indices 2009=100) 220 2010 -3.0 Japan 19.0 Finance 2009 200 5.3 HK 52.0 Plantation 9.0 UK 22.1 180 9.6 Taiwan KLCI 78.3 160 10.1 Singapore Construction 64.5 12.8 US 140 23.5 Industrial 19.3 Msia 45.2 120 21.9 Korea 49.7 100 37.6 Philippines 63.0 40.6 Thailand 63.2 80 Jan-09 May-09 Jul-09 Nov-09 Jan-10 May-10 Jul-10 Nov-10 Jan-11 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 46.1 Indonesia 87.0 % -20 0 20 40 60 80 100 12
Ringgit performance driven by external and domestic developments • MYR appreciated against most currencies in 2010 following a relatively subdued performance in 2009 • Despite volatile capital flows, ringgit adjustments have been orderly MYR performance against selected currencies in 2009 and 2010 EUR 20.6% GBP USD KRW CNY IDR PHP SGD 2010 THB JPY 2009 -21.7% AUD -20 -15 -10 -5 0 5 10 15 20 % MYR depreciation % MYR appreciation 13
The impact of ringgit appreciation on the economy has been manageable Quarterly sectoral survey* 4Q 2010 Impact of ringgit appreciation on profit margins Impact on profit margin thus far Impact on profit margin if ringgit appreciates further 40% 40% 35% 35% 30% 30% 25% 25% 20% 20% 15% 15% 10% 10% 5% 5% 0% 0% Favourable Neutral Unfavourable Favourable Neutral Unfavourable * Based on a survey of 177 companies, of which 109 are manufacturing, 43 non-financial services and 25 Constructions 14
Measures undertaken to allow more efficient management of foreign financial transactions To allow more efficient management of foreign transactions, several measures have been undertaken, including: • Allow settlements in local currencies • Facilitate hedging activities by residents • Allow unlimited holding of foreign currency accounts • Allow settlement of transactions in foreign currency by exporters and importers 15
Prospects for 2011 16
Challenge for global economy going into 2011 is sustaining growth with job creation Global growth projection for 2011 2009 2010 2011 f • Significant improvement in 2010 Annual change (%) World GDP -0.6 5.0 4.4 • Continued recovery in advanced economies although growth remains World Trade -10.7 12.0 7.1 slow US -2.6 2.8 3.0 • Strong growth in emerging economies, Euro area -4.1 1.7 1.5 particularly in Asia underpinned by domestic demand and recovery in Japan -6.3 3.9 1.6 world trade Developing Asia 1/ 7.0 9.3 8.4 • More recently, rising commodity and China 9.2 10.3 9.6 energy prices are leading to higher ASEAN-5 2/ 1.7 6.7 5.5 global inflation Note: Forecasts for 2011 are IMF’s projections 1/ IMF: Asia ex-NIEs 2/ IMF: Indonesia, Malaysia, Philippines, Thailand and Vietnam Source: National authorities, IMF World Economic Outlook, January 2011 Update 17
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