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社会经济研究中心
SOCIO-ECONOMIC
RESEARCH CENTRE
UCSI’s Malaysia’s Economic Model Forum
Malaysia: Where do we go from here?
Lee Heng Guie
Executive Director, SERC
14 October 2017
Socio-Economic Research Centre 1
Agenda
Malaysia’s economic management in perspective
Malaysia’s economy: Now and prospects
But, there are risks to the macro story
Conclusion
Socio-Economic Research Centre 2
Malaysia remains resilient to external challenges
Macroeconomic fundamentals remain supportive of growth
• Diversified sources of growth
• Diversified export and product markets
• Stable labor market conditions and young demographic dividends
• Conducive investment destination for FDI
• Strong and stable financial system
Malaysia faces challenges in a position of strength
• The Malaysian economy is gaining ground but growth remains vulnerable
• Step-up structural policy actions to boost growth potential and productivity
• Address as well as contain vulnerabilities to build economic resilience
• Domestic demand remains the dominant driver of growth
• Unrelentingly consumer spending
• Private investment growth supported by public-and private-initiated projects
Key messages
Socio-Economic Research Centre 4
Malaysia has a track record of economic reinvention through
timely policy formulation and implementation
1960sAgriculture Diversification
Diversification of
commodities
1980sIndustrialization
1990sIncreased connectivity
2000sServices-based economy
Game-changing policies
Major global shifts
Industrialisation
Attracted FDI
Promotion of Invst. Act
Physical connectivity
North-South Highway
Services sector enabler
Financial sector reforms
High speed broadband
More global demand
for commodities
Plaza Accord
Japanese firms
Investing abroad
Rise of global value
chain
China’s integration with
the world
High commodity prices
Source: Bank Negara Malaysia
Rapid rise of industrial
commodities
CPO: 39% to 83% of total
agriculture (1960-1979)
Rising share of services
sector
Services sector: 49% to
54% of GDP (2000-2016)
Substantial increase in FDI and enhanced
physical infrastructure
Net FDI: RM2bn to RM15bn (1980-1995)
Road coverage: 26,000 km to 54,000 km
(1980-1990)
Socio-Economic Research Centre
Taking the road less travelled towards high income
• Private sector-driven development to achieve sustainable growth. The NTP also focuses on
enhancing inclusiveness within the economy through socioeconomic outcomes
5
Socio-Economic Research Centre
Sustainable and resilient economic growth
• Powered by domestic demand, thanks to supportive fiscal, monetary and financial policies
and initiatives
6
Source: National Transformation Program (NTP) Annual Report 2016
Socio-Economic Research Centre
Malaysia has moved out of the “middle-income trap”
• Six years into the implementation of the National Transformation Program, Malaysia has
escaped the middle-income trap, with GNI per capita hitting US$10,010 in 2016 (US$6,767
in 2009).
• Mean household income increased by 8.1% pa to RM6,958 in 2016 from RM4,025 in 2009.
In real terms, it grew by 7.7% pa for the same period.
• Gini’s coefficient had improved steadily from 0.44 in 2007-09, 0.430 in 2012, 0.401 in 2014
and further to 0.399 in 2016.
7
6,767
8,346
9,7009,938
10,34510,645
9,238
10,010
8,906
2009 2010 2011 2012 2013 2014 2015 2016 2017f
Malaysia’s GNI per capita (US Dollar)
Source: BNM; PEMANDU; EPU
3,0113,249
3,6864,025
5,000
6,141
3,6523,956
4,3564,705
5,742
6,833
1,729 1,8752,283
2,545
3,080
3,831
2002 2004 2007 2009 2012 2014
Mean Monthly Gross Household Income (RM)
National Urban Rural
Socio-Economic Research Centre
Private sector showed clear dominance…
• The vibrant landscape for private investment has been enabled by the NTP’s focus on 12
National Key Economic Areas (NKEAs) designed to position the private sector as the
engine of economic growth.
8
Source: National Transformation Program (NTP) Annual Report 2016
Socio-Economic Research Centre
NKEAs accounted for the largest share of GDP (RM865.3
billion or 70%) of GDP in 2016
9
Source: National Transformation Program (NTP) Annual Report 2016
Socio-Economic Research Centre
Fiscal consolidation remains on track
10
Source: National Transformation Program (NTP) Annual Report 2016
Socio-Economic Research Centre
Global economy is in a synchronised recovery
12
3.2
3.63.7
2016 2017e 2018f
World
Source: IMF’s WEO Report, October 2017
1.5
2.2 2.3
2016 2017e 2018f
United States1.8
2.1
1.9
2016 2017e 2018f
Euro Area
6.76.8
6.5
2016 2017e 2018f
China
4.9
5.2 5.2
2016 2017e 2018f
ASEAN-51.7
2.22.0
2016 2017e 2018f
Advanced Economies
Figures denote real GDP growth (%)
4.34.6
4.9
2016 2017e 2018f
Emerging Market and
Developing Economies
Socio-Economic Research Centre
• WTO revised upwards this year’s global trade growth to 3.6% vs. IMF’s 4.2% (1.3% in
2016) from 2.4% previously. For 2018, global trade growth is estimated at 3.2% vs. IMF’s
4.0%.
• Rebounding trade growth is supported by accelerating economic growth and rising import
demand in China and the United States, which spurred trade within Asia.
• Trade to GDP ratio, which had slumped to about 1.1x since the GFC from 2.0x, should rise
to above 1.1x in 2017-18.
13
Source: IMF (WEO October 2017); SERC’s computation
Global trade rebounding but risks remain
Global trade risks2.3
1.7
0.8
1.0 1.1
0.8 0.8
1.21.1
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
0%
2%
4%
6%
8%
10%
12%
14%
2010 2011 2012 2013 2014 2015 2016 2017e 2018f
RatioAnnual change
World Trade Volume (LHS) Trade-GDP Elasticity (RHS)
Socio-Economic Research Centre
• The economy is looking up as the headwinds of past two years dissipate.
• The economy held up strongly (5.7% yoy in 1H17 vs. 4.1% in 1H16), the highest in more
than two years. 2017’s economic growth will hit 5.5% and estimated 5.1% in 2018.
• Resilient domestic demand, improving prospects for exports and corrective policy steps.
14
5.0
1.9
6.1
2.9
4.9
2.8
6.9
4.2
2.0
6.9
3.2
5.0
2.8
6.7
5.6
2.5
6.4
3.3
5.0
2.9
6.9
5.8
2.9
6.5
3.7
5.0
2.7
6.9
5.55.3
Malaysia Singapore Philippines Thailand Indonesia South Korea China
Real GDP growth (% YoY)
2015 2016 1Q 2017 2Q 2017 3QE 2017 4QE 2017
Source: Various officials
Malaysia was among the fastest-growing economies
The Malaysian economy is gaining ground
Socio-Economic Research Centre
Snapshot of real economic and sentiment indicators
15
Industrial production grew steadily
Exports still growing at a robust pace (22.3% in
7M17)
Manufacturing sales recorded highest growth
since March 2010
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
201
1 J
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Apr
Ju
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Oct
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2 J
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Apr
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Oct
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6 J
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Apr
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7 J
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Apr
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Industrial Production (yoy)
-20%
-10%
0%
10%
20%
30%
40%
50%
0
2
4
6
8
10
12
14
16
18
201
4 J
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Ap
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5 J
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6 J
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Oct
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7 J
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Jul
RM billion
Trade Balance (LHS) Exports (yoy) (RHS)
Imports (yoy) (RHS)
-10%
-5%
0%
5%
10%
15%
20%
25%
201
1 J
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Apr
Ju
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Oct
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Manufacturing Sales (yoy)
Business condition improves while consumer
sentiment still below the 100pt threshold
60
70
80
90
100
110
120
130
201
1Q
1
Q2
Q3
Q4
201
2Q
1
Q2
Q3
Q4
201
3Q
1
Q2
Q3
Q4
201
4Q
1
Q2
Q3
Q4
201
5Q
1
Q2
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Q4
201
6Q
1
Q2
Q3
Q4
201
7Q
1
Q2
MIER's Consumer Sentiments Index (CSI)
MIER's Business Conditions Index (BCI)
Source: DOS, Malaysia; MIER
Socio-Economic Research Centre
Private consumption still powering the economy
• Resilient consumer spending (6.9% yoy in 1H17; 2017E: 6.8%).
• Factors underpinning consumer spending: employment, wage growth, commodity income
and income-support measures.
• Private consumption will remain the dominant driver of growth (2016-2020F: 6.4% pa vs.
7.1% pa in 2011-15).
16
Real private consumption growth trend (% YoY)
Source: DOS, Malaysia; SERC
Stable labour market conditions
3.4% 3.4%
4.3%
5.8%
0%
1%
2%
3%
4%
5%
6%
7%
8%
2013 2014 2015 2016 1H 2017
Unemployment Rate (%)
Wage growth for manufacturing and services sectors (yoy)
6.9
8.3
7.2 7.0
6.0 6.0
6.9 6.8
48.8%50.2%
51.4% 51.9% 52.3%53.2%
53.9%
2011 2012 2013 2014 2015 2016 1H 2017 2017fSERC
Real Private Consumption Growth (%) % Share of GDP
Socio-Economic Research Centre
Private investment makes a strong comeback
• Private investment staged a strong expansion of 10.0% yoy in 1H2017 after trapped in
lower growth trajectory since 2Q 2015.
• High capital spending in the services and manufacturing sectors.
• Uncertainty ahead of GE14 may temper private investment (2017E:9.2%, 2016-2020F:
8.2% pa vs. 12.2% pa in 2011-15).
17
Quarterly real private investment growth (% YoY)
11.5
3.8
5.3
4.7
2.1
5.6
4.8
4.9
12.9
7.4
2015Q1 Q2 Q3 Q4 2016Q1 Q2 Q3 Q4 2017Q1 Q2
Private Investment Growth (% yoy)
Real private investment growth trend (% YoY)
9.5
21.4
12.811.1
6.3
4.3
10.09.2
12.8%14.7% 15.9%
16.6% 16.8% 16.9%19.7%
2011 2012 2013 2014 2015 2016 1H 2017 2017fSERC
Real Private Consumption Growth (%) % Share of GDP
Source: DOS, Malaysia; SERC
Socio-Economic Research Centre
Snapshot of private investment
18
5.2%13.3%
24.9%
2.6%
54.0%
0
50
100
150
200
2010 2011 2012 2013 2014 2015 2016
RM billion
Agriculture Mining & Quarrying Manufacturing Construction Services
RM187 bn
RM179 bn
Real private investment growth by sector
Nominal private investment by type Nominal private investment growth by type
Real private investment by sector
6.3% 4.3%
-20%
-10%
0%
10%
20%
30%
40%
50%
2011 2012 2013 2014 2015 2016
Total Agriculture Mining & Quarrying
Manufacturing Construction Services
56.6%
34.1%
9.4%
0
50
100
150
200
250
2010 2011 2012 2013 2014 2015 2016
RM billion
Structure Machinery and equipment Other assets
8.0% 6.4%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
2011 2012 2013 2014 2015 2016
Total Structure Machinery and equipment Other assets
RM211 bn
RM199 bn
Source: DOS, Malaysia
Socio-Economic Research Centre
Services: Dominant driver of GDP growth
• The services sector grew by 6.1% yoy in 1H17 (2017E:5.9%, 2016-2020F:5.8% pa vs. 6.2%
pa in 2011-15).
• At 54.4% of GDP in 2016, there is still some way to achieve the Government’s target of
58.0%.
• Broad-based expansion: trade-related, consumption-based and financial services.
• E-commerce and Digital Free Trade Zone will boost the services growth.
19
Source: DOS, Malaysia; National E-Commerce Strategic Roadmap; SERC
Output growth of services
sector
7.06.5
5.9
6.6
5.15.6
6.1 5.9
2011 2012 2013 2014 2015 2016 1H2017
2017fSERC
Services Sector Growth (%)
Performance of services
subsectors
0%
2%
4%
6%
8%
10%
12%2
01
1Q
1
Q3
201
2Q
1
Q3
201
3Q
1
Q3
201
4Q
1
Q3
201
5Q
1
Q3
201
6Q
1
Q3
201
7Q
1Retail Trade (yoy)Wholesale Trade (yoy)Information & Communication (yoy)Transport & Storage (yoy)
E-commerce growth will
double to 20.8% pa in 2015-
2020
Socio-Economic Research Centre
Manufacturing: Still growing decently
• The manufacturing sector sustained higher growth of 5.8% yoy in 1H17 (2017E: 5.7%,
2016-2020F: 5.3% pa vs. 4.8% pa in 2011-15).
• Export-oriented industries (electronics, technology products and chemical-based products).
Growth in the domestic-oriented industries -- production of food and construction-related
materials (ECRL, MRT, HSR, Pan Borneo Highway, ports, and real estate development).
• Complex business landscape, high cost of doing business, lingering issues about foreign
workers and the weak ringgit could dampen the sector’s growth in the near-term.
20
Output growth of manufacturing sector Performance of key industries
Source: DOS, Malaysia; BNM; SERC
5.4
4.4
3.4
6.1
4.9
4.4
5.8 5.7
2011 2012 2013 2014 2015 2016 1H 2017 2017fSERC
Manufacturing Sector Growth (%)
-40%
-20%
0%
20%
40%
60%
80%
201
1 J
an
Apr
Ju
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Oct
201
2 J
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Apr
Ju
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Oct
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3 J
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Apr
Ju
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Apr
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7 J
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Electronic and Electrical Cluster (yoy)Chemicals and Chemical Products (yoy)Construction-related Cluster (yoy)Transport Equipment (yoy)
Socio-Economic Research Centre
Construction: Promising outlook
• Growth in the construction sector is projected to expand at a faster pace in 2017 (estimated
8.0% vs. 7.4% in 2016) and 8.7% pa in 2016-2020 (10.6% pa in 2011-15).
• Public spending on transportation projects (MRT, LRT, rail, HSR), highways (Pan Borneo
Highway), ports and the public-driven affordable housing development.
• An estimated RM212 billion value of construction jobs covering on-going and new ones over
the next five years. Positive spillovers and multiplier effects on more than 140 sub-sectors.
21
Output growth of construction sector Indicators of construction sector
Source: DOS, Malaysia; BNM; SERC
4.6
18.1
10.611.7
8.27.4 7.4
8.0
2011 2012 2013 2014 2015 2016 1H 2017 2017fSERC
Construction Sector Growth (%)
-100%
-50%
0%
50%
100%
150%
201
1 J
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Apr
Ju
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Oct
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Outstanding Loans to Construction Sector (yoy)
Loan Approved for Construction Sector (yoy)
Socio-Economic Research Centre
Mining: Sustained recovery is well underway
• The mining sector growth is estimated to pace slower at 1.0% in 2017 (2.7% in 2016),
supported by natural gas production as well as new oil field. Output growth is estimated to
increase by 1.8 pa in 2016-2020 (1.3% pa in 2011-15).
• PETRONAS’s voluntary 20,000 barrels per day crude oil supply cut to dampen the sector’s
performance in 1H2017.
• SERC estimates crude oil price of US$55-60 per barrel in 2017-18 vs. BNM’s US$50-55 per
barrel in 2017 (US$43.67 in 2016).
22
Output growth of mining sector Crude oil and natural gas output
Source: DOS, Malaysia; SERC
-4.9
1.61.2
3.3
5.3
2.2
0.9 1.0
2011 2012 2013 2014 2015 2016 1H 2017 2017fSERC
Mining Sector Growth (%)
-30%
-20%
-10%
0%
10%
20%
30%
40%
201
1 J
an
Apr
Ju
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Oct
201
2 J
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Apr
Ju
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Oct
201
3 J
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Apr
Ju
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Oct
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4 J
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Apr
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Oct
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5 J
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7 J
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Extraction of Crude Petroleum Oils & Condensates (yoy)
Production of Crude Gaseous Hydrocarbon (Natural Gas) (yoy)
Socio-Economic Research Centre
Agriculture: From contraction to expansion
• The agriculture sector rebounded strongly to expand by 7.1% yoy in 1H17 and estimated
6.0% in 2017 from a decline of 5.1% in 2016 as the adverse impact of El Niño dissipated.
• Agriculture output is projected to grow by 2.0% pa in 2016-2020 vs. 2.6% pa in 2011-15.
• Palm oil price forecast: RM2,700 per tonne for 2017, RM2,750-2,850 in 2018-2020
(RM2,647 in 2016).
23
Output growth of agriculture sector Subsectors of agriculture
Source: DOS, Malaysia; SERC
6.8
1.0
2.0 2.01.3
-5.1
7.1
6.0
2011 2012 2013 2014 2015 2016 1H 2017 2017fSERC
Agriculture Sector Growth (%)
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
201
1Q
1
Q2
Q3
Q4
201
2Q
1
Q2
Q3
Q4
201
3Q
1
Q2
Q3
Q4
201
4Q
1
Q2
Q3
Q4
201
5Q
1
Q2
Q3
Q4
201
6Q
1
Q2
Q3
Q4
201
7Q
1
Q2
Oil Palm (yoy) Livestock (yoy)
Other Agriculture (yoy) Marine Fishing (yoy)
Socio-Economic Research Centre
Exports swing from a drag to driver of growth
• Exports have staged a recovery since Nov 2016 (estimated 14.5% in 2017 vs. 1.1% in
2016). Exports are projected to rise by 7.5-10.5% pa in 2018-2020.
• Three fundamental drivers: improved global demand, tech demand and higher commodity
prices. Base and weak exchange rate effects have inevitably played some part.
• Risks to trade could come from trade protectionism and disruptive policies in advanced
economies.
24
Source: DOS, Malaysia
Exports accelerated
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
20
40
60
80
100
120
140
160
2011 2012 2013 2014 2015 2016 1H 2017
RM billion
Trade Balance (LHS) Exports (yoy) (RHS)
Imports (yoy) (RHS)
Major export products 2016 1H 2017
Electrical & electronics (36.6%) 3.5% 20.5%
Chemical, with products (7.5%) 7.0% 19.1%
Petroleum products (6.9%) -0.1% 40.0%
Palm oil (5.3%) 3.3% 26.9%
Machinery equipments (4.8%) 4.2% 3.3%
Manufacturers of metal (4.2%) -4.3% 2.6%
Liquefied natural gas (4.1%) -28.2% 23.4%
Optical & scientific equip. (3.7%) 10.2% 7.8%
Crude oil (2.8%) -14.6% 47.3%
Overall gross exports 1.1% 21.0%
Higher exports across the board
Parenthesis indicates share of overall gross exports in 2016
Socio-Economic Research Centre
Where is our growth coming from?
• Broad-based output expansion. Domestic demand still calling the shots.
• All economic sectors registered positive growth in 1H 2017.
• Services and manufacturing sectors are the dominant growth drivers.
26
% change, 2010=100 2015 2016 2017
1Q
2017
2Q
2017
1H
2017e
(SERC)
2018f
(SERC)
GDP by demand component
Private consumption (54.0%) 6.0 6.0 6.6 7.1 6.9 6.8 6.2
Private investment (16.8%) 6.3 4.3 12.9 10.7 10.0 9.2 8.3
Public consumption (12.5%) 4.4 0.9 7.5 3.3 5.3 5.1 4.0
Public investment (8.3%) -1.1 -0.5 3.2 -5.0 -0.9 1.2 2.0
Exports of goods and services (68.4%) 0.3 1.1 9.8 9.6 9.7 9.1 6.7
Imports of goods and services (60.3%) 0.8 1.1 12.9 10.7 11.8 11.4 7.8
GDP by economic sector
Agriculture (8.0%) 1.3 -5.1 8.3 5.9 7.1 6.0 4.0
Mining & quarrying (8.7%) 5.3 2.2 1.6 0.2 0.9 1.0 1.5
Manufacturing (22.9%) 4.9 4.4 5.6 6.0 5.8 5.7 5.5
Construction (4.7%) 8.2 7.4 6.5 8.3 7.4 8.0 9.0
Services (54.4%) 5.1 5.6 5.8 6.3 6.1 5.9 5.6
Overall GDP 5.0 4.2 5.6 5.8 5.7 5.5 5.1
Source: DOS, Malaysia; BNM; SERC
Parenthesis indicates % share to GDP in 2017f from BNM
Socio-Economic Research Centre
Inflationary trend remains high, fuel price is the wild card…
• High fuel prices-inflicted cost price pressures along with other indirect costs such as the
spillover effect of the weakening ringgit pushed inflation higher to 5.1% yoy in March.
• But, it had moderated from 4.3% in 1Q to 4.0% in 2Q and 3.2% in July before moving
higher to 3.7% in August. CPI growth up 3.9% in 8M17.
• Inflation is expected to increase by 3.8% in 2017 and 3.0-3.5% in 2018.
27
Fuel price and exchange rate changes on
inflation
Inflation is largely driven by food prices and
volatile fuel price
Source: BNM; DOS, Malaysia; SERC
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
201
1 J
an
Apr
Ju
l
Oct
201
2 J
an
Apr
Ju
l
Oct
201
3 J
an
Apr
Ju
l
Oct
201
4 J
an
Apr
Ju
l
Oct
201
5 J
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Apr
Ju
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Oct
201
6 J
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Apr
Ju
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Oct
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7 J
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Apr
Ju
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Food & Non-Alcoholic Beverages (yoy)Housing, Water, Electricity, Gas & Other Fuels (yoy)Transport (yoy)Services (yoy)
Inflation Rate
2017f:3.5%
31 Aug 2017: RON95:RM2.16
30 Aug 2017: RM/US$:4.2705
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Inflation Rate
RON 95 Petrol Price (end-period, % change)
RM/USD (end-period, % change)
Socio-Economic Research Centre
The ringgit does not reflect its fundamental value
• In REER terms, the ringgit has appreciated by 0.5% as of August this year (-15.0% in 2013-16).
• Positive fundamentals: Brightening economic growth prospects, firming commodity prices,
the onshore ringgit stabilization measures, prospect of domestic interest rate normalization,
continued current account surplus, accumulation of foreign reserves.
• Counteract dampening factors: Strong US dollar, higher US interest rates and yields, flows
into the US dollar assets, geopolitical risks and developments in global financial markets.
• End-2017E: RM4.20/US$1; End-2018F: RM4.10-4.20/US$1
28
-4.3%
-0.6%
15.5%
-6.9%
-2.0%
-4.8%
1.2%
-6.6%
-2.1%
2.4%
5.9%
-4.7%
-0.5%
2.2%
0.0%
-1.1%
9.2%
6.1%
0.6%
1.4%
USD
EUR
GBP
JPY
SGD
THB
PHP
IDR
KRW
CNY
Regional currencies against USD Ringgit performance
-4.3%
-3.7%
-17.1%
2.8%
-2.4%
0.5%
-5.4%
2.5%
-2.2%
-6.5%
5.9%
11.2%
6.4%
3.6%
5.9%
7.1%
-3.1%
-0.2%
5.2%
4.4%
MYR
EUR
GBP
JPY
SGD
THB
PHP
IDR
KRW
CNY
Source: Bank Negara Malaysia
6 Oct 2017
2016
Socio-Economic Research Centre
The ringgit decouples from crude oil price
29
US$/barrel RM/US$
Source: BNM
Socio-Economic Research Centre
Does FDI still favor Malaysia?
30
0
10
20
30
40
50
60
2010 2011 2012 2013 2014 2015 2016 1H 2017
RM billion
Foreign Direct Investment (FDI) Direct Investment Abroad (DIA)
Source: BNM; MIDA
21.2%
12.4%
7.9%
6.5%
2.6%
2011 2012 2013 2014 2015 2016 1H 2017
Singapore Japan Netherlands United States China
FDI stock in Malaysia: Diversified investors
Higher approved total investment in 2016 Higher approved foreign investment in
manufacturing and services
FDI exceeded Malaysia’s direct investment
abroad
Manufacturing, 27.4
Services, 28.3
0
5
10
15
20
25
30
35
40
45
2011 2012 2013 2014 2015 2016
RM billion
Manufacturing Services2013 2014 2015 2016
Services141.2
Manufacturing58.5
Primary8.2
RM billion207.9
193.0
RM556.7 bn
RM546.6 bn
Socio-Economic Research Centre
Malaysia’s medium-term economic outlook
• The economy is projected to grow by 5.1% pa in 2016-20 (5.3% pa in 2011-15).
• Private sector expenditure to support the economy. Improved income and increased
employment means higher spending power.
• The implementation of ongoing and new projects related to rail, ports, highways, real estate
and in major economic sectors (manufacturing, services and mining) are expected to
sustain public and private investment.
31
5.35.5
4.7
6.0
5.0
4.2
5.5
5.15.4 5.5
2011 2012 2013 2014 2015 2016 2017e 2018f 2019f 2020f
Real GDP Growth (%)
Source: DOS, Malaysia; SERC
Socio-Economic Research Centre
Can BNM afford to increase interest rates?
32
• Lingering uncertainties in global economic and financial environment
• Higher US interest rates
• Volatile capital flows and exchange rate
Policy environment
Growth, inflation and financial imbalances
• Is economic growth strong enough?
• Domestic demand faces headwinds (high cost of living and weak consumer sentiment)
• Cost-induced inflation outweighs demand pressure
• Household debt to GDP eased to 85.6% at end-June 2017 (88.4% at end-2016; 89.1%
at end-2015)
• Continue to monitor the risk of financial imbalances
BNM will face a tough yet decisive balancing act if the Fed takes more
aggressive run of rate increases ahead
OPR
GDP
Inflation
3.50%
2007
6.5%
2.0%
3.25%
2008
4.7%
5.4%
2.00%
2009
-1.7%
0.6%
2.75%
2010
7.4%
1.6%
3.00%
2016
4.2%
2.1% =
3.00% =
2017e
5.5%
3.5%
3.25-3.50%
2018f
5.1%
3.0-3.5%
Socio-Economic Research Centre 33
Section 3:
A critical look at Malaysia economy –
Challenges, pitfalls and opportunities
Socio-Economic Research Centre
Macroeconomic fundamentals remain supportive of growth
34
54
23
9 85
Se
rvic
es
Ma
nu
factu
rin
g
Min
ing
Ag
ricu
ltu
re
Con
str
uction
Malaysia GDP by Economic Sectors (2016)% share of GDP
Diversified sources of growth Diversified export market and
product
Stable labour market
conditions
37
46
17
2016p
Product% share of
exports
Commodities
Non E&E
E&E
36
16
9 9 8 7 7 63
HK SG JP CN US NL UK KR CH
FDI Inflows by Source Country (2016)
% share of total FDI inflows
Conducive investment
destination for foreign
investors
Source: BNM
28
29
13
10
20
2016p
Market% share of
exports
ROW
NIE
PR China
ASEAN
G3
Current account balance
reflects strong investment
2010 2011 2012 2013 2014 2015 2016p
Current Account Balance% of GNI
14.1
14.2
2015 2016p
Employment(million)
4.9
4.2
2015 2016p
Wage Growth(%)
55.5
95.3
11.8%
16.5%
0%
10%
20%
0
50
100
150
1998 2016p
% of Nominal GDP
Size of Bond Market and Banking Capital Ratio
Size of Bond Market (LHS) Capital Ratio (RHS)
Deeper markets and strong
financial buffers
Socio-Economic Research Centre
Here are four shifting trends casting a challenging future for
Malaysia
35
Driving competitiveness and productivity
• Competitive framework – tax structure and regulatory environment
• Unlocking productivity is critical
Digital technologies and transformation
• Building a connected ecosystem
• Technology disruption
Rising global complexity
• Unpredictable policy shift in advanced economies
• Shifting hotspot of dominant economic power
Ageing population
• Widening retirement savings gap
• Rapidly escalating healthcare expenditure
Socio-Economic Research Centre
#1 Driving competitiveness and productivity
• Global competition to cut corporate tax heats up
• Malaysia’s productivity growth is lagging behind
• Strategies and initiatives
Push for competitive tax structure
Restructure and improve the management of foreign workers
Actively encourage the adoption of 4th Industry Revolution
Create dedicated pool of investment funds or align existing fund to drive 4th Industry
Revolution agenda nationally
36
21.6
0.7
%
-0.5
% 1.1
%
0.0
% 1.3
%
3.4
%
6.6
%
3.0
% 4.4
%
4.6
%
-1%0%1%2%3%4%5%6%7%
020406080
100120140160
US
Au
str
alia
Sin
ga
pore
Jap
an
Ko
rea
Ma
laysia
Chin
a
Th
aila
nd
Ph
ilipp
ines
Indo
nesia
USD (‘000)
Th
ou
sa
nd
s
Productivity Level (LHS) Growth (RHS)
Surge in FW remittances
despite only small increase in
number of FW
17
30
2.06
2.14 (2015)
0
1
2
0
5
10
15
20
25
30
35
2008 2016
million person
RM billion
Outward Workers’ Remittances (LHS)
Number of FW (RHS)
Source: EY; MPC; BNM; EPU
30
25 25 24 24
20 20 2018.5
17
Ph
ilipp
ines
Indo
nesia
Mya
nm
ar
Ma
laysia
Lao
s
Vie
tna
m
Th
aila
nd
Cam
bo
dia
Bru
ne
i
Sin
ga
pore
Regional corporate tax rate
comparison
Regional labour productivity
comparison in 2015
Socio-Economic Research Centre
#2 Digital technologies and transformation
▪ Transport – seamless connectivity, safety, reliability and speed
▪ Connectivity/communication – investment in ICT to scale benefits of digitalization,
broadband speed and reliability of coverage
▪ Space/housing
▪ Manufacturing for the future
▪ Consumer culture (taste, fashion and lifestyle)
37
SERC’s Survey result Malaysia introduced National E-Commerce
Strategic Roadmap to double the growth
Source: National E-Commerce Strategic Roadmap; SERC
2.90
2.82
2.90
3.00
3.23
2.48
All SMEs
Construction & PropertyDevelopment
Trading (Imp & Exp)
Wholesale & Retail
Manufacturing
Professional services
Average Current Level of ICT Use(1=Highly advanced 2=High 3=Moderate 4=Low 5=None)
Socio-Economic Research Centre
#3 Rising global complexity
• According to PwC, emerging markets will continue to be the growth engine of the global
economy. By 2050, China could be the largest economy in the world, with India in second
place and Indonesia in fourth place. Malaysia will improve to 24th placing from 27th in 2016.
38
Sources: IMF for 2016 estimates, PwC analysis for projection 2050
2016 2030 2050
China 1 China 1 China 1
US 2 US 2 India 2
India 3 India 3 US 3
Japan 4 Japan 4 Indonesia 4
Germany 5 Indonesia 5 Brazil 5
Russia 6 Russia 6 Russia 6
Brazil 7 Germany 7 Mexico 7
Indonesia 8 Brazil 8 Japan 8
UK 9 Mexico 9 Germany 9
France 10 UK 10 UK 10
Malaysia 27 Malaysia 25 Malaysia 24
Emerging market will dominate the world’s top
10 economies in 2050 (GDP at PPPs)
Vietnam, the Philippines and Nigeria could make
the greatest moves up the rankings by 2050
Vietnam Philippines Nigeria Malaysia
Average annual GDP growth rate, 2016-2050
5.1% 4.3% 4.2% 3.5%
2050
2016
up 12 places
up 9 places
up 8 places
20th
32nd 28th 22nd 27th
19th
14th
24th
up 3 places
E7 economics G7 economies
Socio-Economic Research Centre
# 4 Ageing population
• Malaysia will become an ageing population by 2030 when 15% of our population will be
aged 60 and above (10% currently)
• The ageing population and lifestyle illnesses are drivers of growing healthcare expenditure;
may deter investment and they spend differently
• Fiscal cost on healthcare, social protection and housing will be substantial for elderly
population
• The combined pressures of ageing and the retirement savings gap might redefine the
concept of retirement into the future (tapered retirement)
39
9.9%
15.3%
19.8%
0%
5%
10%
15%
20%
25%
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
201
9
202
0
202
1
202
2
202
3
202
4
202
5
202
6
202
7
202
8
202
9
203
0
203
1
203
2
203
3
203
4
203
5
203
6
203
7
203
8
203
9
204
0
Population projection for aged 60 years and above(% of total population)
Sources: DOS, Malaysia
Socio-Economic Research Centre
Conclusion
1) The global economy is in a synchronized expansion of economic activities. It is a mutual
reinforced economic upswing in both advanced and emerging economies.
2) Policy uncertainty will remain in 2018, and the risks include unexpected changes in
monetary policies and the shrinking of the Fed’s balance sheet, the financial-sector
uncertainty in major economies, as well as geopolitical tensions. Pressures for
protectionism are building up.
3) The Malaysian economy remains on track for expansion, firing on twin engines (2017E:
5.5%; 2018F:5.1%).
4) Strengthening policy space, addressing vulnerabilities, and enhancing international
competitiveness by promoting investment, services, high-end manufacturing and FDI
would also boost economic resilience and improve growth prospects.
5) Reaping digital technologies dividend requires the right policy mix and investments such
as software and hardware investment, soft skills and the right ecosystem to harness
information, communications and technology (ICT) and e-commerce to deliver increased
productivity and growth.
40
社会经济研究中心
SOCIO-ECONOMIC
RESEARCH CENTRE
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SERC Sdn. Bhd.
Address : 6th Floor, Wisma Chinese Chamber,258, Jalan Ampang, 50450 Kuala Lumpur, Malaysia.
Tel : 603 - 4260 3116 / 3119Fax : 603 - 4260 3118Email : [email protected] : http://www.acccimserc.com