Malaysia, Navigating the New Normal CIMB 9 th Annual Malaysia Corporate Day 2017 5 January 2017 Fraziali Ismail Bank Negara Malaysia 1
Key areas Part 1: Global Economic Overview and Outlook Part 2: Domestic Economic Development and Prospects Part 3: Addressing Challenges 2
Signs of improvement in global economy, but downside risks remain … …but downside risks to global growth remain Gradual increase in manufacturing PMI in several large economies.. Purchasing Manager’s Index (PMI) in US, Euro Risks to global growth area and PR China Index 58 Downside risks Upside risks Euro area PR China US 57 Uncertainties surrounding post-Brexit era 56 55 Uncertainties surrounding MP adjustments 54 53 Protectionist policy in the Policy changes in the US 52 US (easing of taxes) 51 Sharper PR China 50 slowdown <50=contractionary 49 48 4Q 13 1Q 14 2Q 14 3Q 14 4Q 14 1Q 15 2Q 15 3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 Oct-16 Nov-16 Source: Markit Economics 3
… and global economic environment remains challenging International trade activity to remain Moderate and uneven growth in global subdued economy Global and regional growth Global growth and trade Annual change Annual change (%) (%) Adv. economies 9 8.3 Asia 12 7.4 Other EMEs 10 Global GDP 7 5.3 8 5 4.4 6 3.3 3.1 3 4 2 1 0 -1 GDP Trade Volume -2 -3 -4 2005-07 2010-2012 2013-2016f 2005 2007 2009 2011 2013 2015 2017f Source: IMF World Economic Outlook (October 2016) Source: IMF World Economic Outlook (October 2016) 4
Evolution of the “new normal” Low global growth Unconventional policies Impending megatrends Key Policy Rates of Selected IMF's Global Economic Outlook Advanced Economies yoy, % Rate, % Disruptive technologies 5.5 7 Swiss National Bank 6 European Central Bank 5.0 Rich Increasing inequality Divide 5 Bank of Japan 2011 Poor Federal Reserve 4 2012 4.5 Bank of England Ageing society 3 2013 2 2014 4.0 2015 1 Intensifying globalisation Oct-16 0 3.5 WEO -1 Rising indebtedness -2 3.0 2006 2008 2010 2012 2014 2016 2010 2012 2014 2016f 2018f 2020f Source: International Monetary Fund (IMF), national authority, various research houses 5
Malaysia: Multiple shocks weighing on growth The economy has been affected by both external and domestic shocks since end-2014 Real GDP growth of selected countries Annual change (%) • Global commodity price shocks 8 7.1 2Q 2016 3Q 2016 7 • Prolonged ringgit depreciation 6 5.0 • GST implementation 5 4.3 4 • Domestic price adjustments 3.2 3 2.7 • Moderation in PR China’s economic growth 2 0.6 1 0 PH ID MY KR TH SG Source: Department of Statistics, Malaysia and Bank Negara Malaysia 6
L The Malaysian economy to expand around 4 - 5% in 2017 Real GDP Growth Annual change (%) • Growth mainly driven by private domestic demand 8 • The external sector to provide some 6 5.0 4.5 5.0 support to growth 4 • 4.0 Downside risks to growth remain amid 4.0 greater uncertainty on both the global 2 and domestic fronts 0 -2 2008 2010 2012 2014 2016f 2017f f forecast Source: Department of Statistics, Malaysia and Bank Negara Malaysia 7
Private consumption to remain supported by continued employment and wage growth …supported by continued … and wage growth Improvement in household spending… employment growth… Real private consumption Employment in the Labour Force Wage growth in the manufacturing and wholesale and retail services sectors Annual change (%) Annual change (%) Million Persons 9 7 14.3 +41k jobs 14.2 8 14.2 Employment Private sector wages 6 LT average 7 (‘90 - ’15: 6.6%) 14.1 5.1 5 6 6.3 14.0 6.1 4.2 4 5 13.9 4 13.8 3 1Q 14 4Q 14 3Q 15 2Q 16 '16f '17f 3Q 14 1Q 15 3Q 15 1Q 16 3Q 16p 3Q 14 1Q 15 3Q 15 1Q 16 3Q 16 f forecast p Preliminary Source: Economic Report 2016/17, Department of Statistics, Malaysia 8
Private investment to continue to expand, but will trend below long-term average …supported by investment in the manufacturing and Continued modest growth of capital spending… services sectors Private investment by sector (2015) Real private investment Annual change (%) 16 49 Services Public Private (35%) 12 (65%) Manufacturing 26 LT average (‘90 - ’15: 8.4%) Construction 3 8 6 Agriculture 5.8 16 Mining 5.3 4 • Transport and storage: Oil and gas storage terminals, seaports and aircrafts Services • Telecommunication: 4G/LTE network expansion 0 • Electrical and electronics (E&E) 1Q 14 4Q 14 3Q 15 2Q 16 '16f '17f Mfg • Resource-based industries f forecast Source: Economic Report 2016/17, Department of Statistics, Malaysia, Bank Negara Malaysia 9
Continued expansion across all economic sectors in 2017 Services and manufacturing sectors to underpin growth • Services % share Real GDP - Supported by consumption- and of GDP 2016 f 2017 f Annual change (%) (2015) trade-related sub-sectors • Manufacturing 53.5 5.6 5.7 Services - Continued growth supported by improving global demand 23.0 4.0 4.1 Manufacturing • Mining Mining 9.0 1.1 1.4 - Higher oil and gas production • Agriculture 8.9 -3.3 1.5 Agriculture - Improvement in CPO production as weather conditions normalise Construction 4.4 8.7 8.3 • Construction 100.0 1 Real GDP 4.2 4.6 - Driven mainly by activity in the civil engineering sub-sector f forecast 1 Numbers do not add up due to rounding and exclusion of import duties Source: Economic Report 2016/17 10
Headline inflation to range between 2 – 3% in 2017 Inflation forecast Annual • For 2016, inflation is expected to average at the change (%) lower end of the 2.0 – 2.5% forecast range. 6 5 • Going into 2017, inflation is expected to average higher but to remain within the 2 – 3% range, 4 Historical avg. driven mainly by higher domestic fuel prices (1991-2014) = 3% 3.0 amid weak exchange rate. 3 2.0 2 • Inflationary pressures will be mitigated by 2.1 continued low global energy and commodity 1 prices, subdued global inflation and moderate domestic demand. 0 2009 2010 2011 2012 2013 2014 2015 2016f2017f f forecast Source: Economic Report 2016/17 and Department of Statistics, Malaysia 11
External sector to provide some support to growth Exports and imports growth to improve in 2017, albeit at a modest pace Annual change (%) 25 Gross Exports Gross Imports 20 • Exports to be supported by a 15 turnaround in commodity exports and 10 continued demand for E&E products 3.4 5 2.7 • 0 Imports to continue to expand, driven mainly by capital imports for -5 infrastructure projects -10 -15 -20 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f forecast Source: Ministry of Finance 12
Fiscal consolidation is expected to remain on course Fiscal deficit for 2017 is targeted to improve to 3.0% of GDP Federal Government Fiscal Balance RM billion underpinned by % of GDP 0 0 -10 -1 -20 -2 Decline in expenditures following 1 -30 -3 optimisation measures -3.0 -3.1 -3.2 -40 -4 -3.4 -3.8 -50 -5 -4.3 -4.6 -4.7 -5.3 -60 -6 RM billion Revenue gains supported by higher 2 % of GDP (RHS) -70 -7 -6.7 corporate income tax and oil-related -80 -8 receipts 2008 2009 2010 2011 2012 2013 2014 2015 2016e2017b 1. 2016e : Latest estimate reflecting MOF E-report released in October 2. 2017B : Target fiscal deficit as announced during 2017 Budget Speech Source: Ministry of Finance, Malaysia 13
Malaysia has shown the ability to manage effects of episodes of financial shocks Malaysia has experienced episodes of capital • Malaysia’s ability to absorb the volatility of these flows outflows before and the effects on financial market is supported by – Greater exchange rate flexibility and international NR Portfolio Flows, Reserves and Ringgit Performance reserve buffers USD billion 0 – Well-developed financial markets and resilient banking -5.5 -5 system -19.1 -10 – Exchange rate adjustments avoids overadjustment in -27.2 1 -28.5 -15 domestic demand and prices -39.3 -20 (-9.7) – Intervention operations are to smoothen movements in -25 the foreign exchange rate and ensure efficient -35.6 2 -30 NR Portfolio Flows functioning of the market Change in Reserves -35 (% Change in MYR/USD) (-29.8) -40 • These have supported the orderly functioning (-12.6) -45 of the foreign exchange market GFC Taper tantrum Current (Mar'08- (22 May- (1 Sep'14 - Mar'09) 28 Aug'13) 3 Jan'17) Source: BNM ; Note: 1 Latest NR portfolio flows data up to 3 Jan 2017; 2 Reserves data up to 15 Dec 2016 14
International reserves remain ample with manageable external debt Reserves have increased five-fold since External debt is mostly long-term with the Asian Financial Crisis manageable foreign-currency exposure By Tenure USD bil Times Net International Reserves 160 12 15 Dec 2016: No immediate 140 USD96.4 bil 10 repayment 120 8.3 requirements Long-term Short-term 8 61.4% 1997: 38.6% 100 USD21.7 bil 80 6 60 4 By Currency Composition 40 1.2 2 20 0 0 Largely Foreign 1991 1994 1997 2000 2003 2006 2009 2012 As at hedged and Currency 15 backed by 62.0% Net International Reserves Dec Ringgit Not affected external Retained import cover (months) (RHS) 2016 38.0% by valuation assets Reserves/ST ext debt (times) (RHS) Source: Bank Negara Malaysia 15
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