Leveraging Trade Agreements 30 June 2016 Rafael Muoz Moreno, Senior - - PowerPoint PPT Presentation

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Leveraging Trade Agreements 30 June 2016 Rafael Muoz Moreno, Senior - - PowerPoint PPT Presentation

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Malaysia Economic Monitor Leveraging Trade Agreements 30 June 2016 Rafael Muoz Moreno, Senior Economist 1 Contents RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK External environment Domestic economic developments Outlook

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30 June 2016 Rafael Muñoz Moreno, Senior Economist

Malaysia Economic Monitor Leveraging Trade Agreements

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Contents

 RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK

 External environment  Domestic economic developments  Outlook

 LEVERAGING TRADE AGREEMENTS

 Trade contribution to development  New trade agreements opportunities (and challenges)  Domestic reforms leveraging on trade agreements

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Source: World Bank DECPG – Global Economic Prospects (June 2016).

Annual GDP growth, percent

Sluggish global economic growth…

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0

Current estimate (June 2016) Previous estimate (January 2016)

World Advanced Economies Emerging Market and Developing Economies East Asia and Pacific

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…and low commodity prices

40 50 60 70 80 90 100 110 120 130 140 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Energy Non-energy Source: World Bank Commodity Price Data (Pink Sheet).

Commodity Prices Indices Index

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The current account surplus narrowed further…

  • 15.0
  • 10.0
  • 5.0

0.0 5.0 10.0 15.0 20.0 Current Transfers Primary and Secondary Income Services Balance Goods Balance Current Account Balances, percent of GDP (last four quarters) Source: CEIC, DOSM, World Bank staff calculations.

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…as commodity surplus declined

Source: CEIC, DOSM, World Bank staff calculations.

  • 5.0
  • 3.0
  • 1.0

1.0 3.0 5.0 7.0 9.0 11.0 13.0 15.0 Commodity Balance Non-Commodity CA Balance

Balances, percent of GDP (last four quarters)

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Fiscal consolidation continues despite lower oil- related revenues

  • 4.6
  • 6.7
  • 5.3
  • 4.7
  • 4.3
  • 3.8
  • 3.4
  • 3.2
  • 3.1
  • 7.0
  • 6.0
  • 5.0
  • 4.0
  • 3.0
  • 2.0
  • 1.0

0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016f

Balances of the Federal Government, percent of GDP

Source: CEIC, MoF , World Bank staff calculations.

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Growth remains resilient supported by private consumption

  • 8.0
  • 6.0
  • 4.0
  • 2.0

0.0 2.0 4.0 6.0 8.0 10.0 12.0 Private consumption Fixed investment Change in inventories Government Net exports Real GDP Source: CEIC, DOSM, World Bank staff calculations. Contribution to GDP, y/y

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Banking system’s health remains strong

1.1 1.2 1.2 1.3 1.3 1.4 1.4 1.5 1.5 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16

Net impaired loans to total loans (percent)

Source: Bank Negara Malaysia (BNM).

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Household’s loan growth continues to moderate

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 Passenger cars Residential property Personal use Credit cards Total, Households

Loans outstanding (banking system) y/y change of 12-mth moving averages, percent

Source: BNM, World Bank staff calculations.

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Portfolio inflows have returned…

  • 20.0
  • 15.0
  • 10.0
  • 5.0

0.0 5.0 10.0 15.0 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 Direct Investment Abroad Direct Investment in Malaysia Foreigners Residents Other Financial Account

Percent of GDP (last four quarters)

Source: CEIC, World Bank staff calculations.

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… helping to increase international reserves

80,000 90,000 100,000 110,000 120,000 130,000 140,000 150,000 160,000 170,000 180,000 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Official Reserves Asset Other Foreign Currency Assets Net Forward Position Source: CEIC, World Bank staff calculations.

Reserves, USD millions

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Sluggish global economic growth Commodity prices depressed Weak global trade

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Global trade is expected to remain weak

0.6 0.2 2.0 3.4 World: 7.5 MYS: 7.6

  • 15
  • 10
  • 5

5 10 15 20 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f 2018f Malaysia Exports World Trade Volumes 2002-2007 av

World Trade and Malaysia’s Export Growth Annual growth

Source: CEIC, World Bank DECPG, World Bank staff calculations.

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Growth is expected to moderate in 2016

Source: CEIC, DOSM, World Bank staff projections.

Change from last year, percent

4.4 4.5 4.7

  • 2.0
  • 1.0

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0

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Current account surplus projected to narrow further

12.9 17.1 15.5 10.1 10.9 5.2 3.5 4.4 3.0 2.1 2.4 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 Source: CEIC, DOSM, World Bank staff projections. Current account balance, percent of GDP

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Transforming urban transport

Leveraging Trade Agreements

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Malaysia is a very open economy

Trade, percent of GDP

Source: World Development Indicators 2016 73.7 138.5 59.2 54.8 48.2 20 40 60 80 100 120 140 160 Malaysia Malaysia World EAP LAC 1972 2014

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Every USD1 million of gross exports supported 22.3 jobs and wage growth

Source: LACEX, World Bank staff calculations

Total Wages supported by Malaysia’s exports, USD billion 1995-2011

13.2 54 10 20 30 40 50 60 1995 2011

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Trade openness has diversified exports…

Source: World Bank team calculation based on WITS, SITC rev 2.

Gross exports, billion US$

0.0 50.0 100.0 150.0 200.0 250.0 300.0 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Agricultural raw materials Food (incl. CPO) Fuels Chemicals Ores & Metals Other manufactures Manufactures

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…and boosted outward investment

Source: World Development Indicators 2016

Net FDI outflows, percent of GDP

0.8 1.8 3.1 6.1 5.4 4.1 4.8 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 Average 1980s Average 1990s Average 2000s 2011 2012 2013 2014

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Free Trade Agreements are part of Malaysia’s development strategy

Malaysia has signed 14 FTAs and 13 are already active

Source: Adapted from ASEAN Integration Center https://aric.adb.org/fta-country

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“New generation” trade agreements have more coverage to promote competition

Year signed Agreement Competition Standards & TBT IPR Services Investment Government procurement 1992 ASEAN FTA 1 2005 Malaysia-Japan 1 1 1 1 1 2006 Malaysia-D8 Countries 1 2007 Malaysia-Pakistan 1 1 1 2009 Malaysia- New Zealand 1 1 1 1 1 2010 Malaysia-Chile 1 1 2011 Malaysia-India 1 1 1 2015 Trans-Pacific Partnership 1 1 1 1 1 1

Source: Adapted from Dür, A., Baccini L., and Elsig M. (2014) Note: 0: not covered in the agreement, 1: covered in the agreement

Coverage of Malaysia’s Free Trade Agreement

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Improved regulations and trade facilitation can increase the expected gains of new FTAs

20.1 20.5 8.0 17.7 18.0 6.7 5 10 15 20 25 Exports Imports GDP

Percent

no spillovers positive spillovers Source: Petri and Plummer (2016)

Change in Malaysia GDP, imports and exports, percent compared to the baseline by 2030

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Securing further tariff reduction can benefit Malaysia’s exports

20 40 60 80 100 10 20 30

Simple average US MFN tariff

Source: UN Trains database, World Bank staff calculations Note: products are 5 digit SITC classification. Blue circles are products that have MFN tariff up to 5 percent

Average US MFN tariff and share of US market in total Malaysia’s exports , 5 digit SITC product

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Eliminating non-tariff barriers abroad can benefit Malaysia

2 4 6 8 10 12 14 16 18 AUS CAN CHL JPN MEX MYS NZL PER SGP USA VNM AVE for SPS/TBT Measures AVE for Non-SPS/Non-TBT Measures

Source: Kee and Nicita (2016, forthcoming) Estimated ad-valorem equivalent of Non Tariff Measures, percent

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Trade Agreements are also an opportunity to accelerate domestic reforms

Services Investment Policies Competition Policies SMEs

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Services Investment Policies Competition Policies SMEs

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Services contribution to exports is below other peer countries

20 40 60 80 MYS CAN JPN KOR MEX SGP TWN USA VNM

Services

Direct value added Inputs into services Inputs into manufacturing Inputs into primary production

20 40 60 80 Share MYS CAN JPN KOR MEX SGP TWN USA VNM

Manufacturing

Direct value added Inputs from services Inputs from manufacturing Inputs from primary production

Source: OECD-WTO TiVA database (2015), World Bank staff calculations

Contribution of services as inputs to other services sectors Share of inputs going into manufacturing

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Services in Malaysia are still relatively more restricted to foreign providers

Source: (Molinuevo & Saez, 2014), World Bank staff calculations

Restrictions for foreign investors across economic activities in Malaysia

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Trade agreements alone may be not enough to liberalize services

Source: WBG team

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Some policy options

Strengthening coordination mechanism to implement the Services Blueprint Review cross cutting constraining policies (i.e. “nationality or residency”) Facilitate movement of business professionals

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Services Investment Policies Competition Policies SMEs

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Growth of FDI inflow has trailed compared to peer countries

  • 5.0

0.0 5.0 10.0 15.0 20.0 25.0 Source: UNCTAD, World Development Indicator, World Bank staff calculations

Average growth of stock of FDI, 2010-2014

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Better investment policies can help boost

  • utward FDI

50 100 150 200 250 300 350 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Greenfield M&A Source: UNCTAD Number of announced greenfield projects and mergers and acquisitions abroad by Malaysian companies, 2003-2014

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Some policy options

Establish a mechanism to domestically handle investors’ grievances to minimize risk of ISDS cases Conduct regulatory impact analysis ASEAN regional champion to streamline NTMs

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Services Investment Policies Competition Policies SMEs

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Significant GLCs participation in the economy

Present in many sectors 36% of Bursa Malaysia Employ more than 225,050 Malaysian Employ more than 148,577 foreign employees

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Trade agreements promoting level playing field

Removing Anti-Competitive Sector Regulation Minimize State’s distortion

  • n competition

Effective Competition Law and Antitrust Enforcement Addressing GLCs carve-outs In the medium term

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Some policy options

Assess the impact that the different sector chapters may have in GLCs participating in them Implement existing regulations to prevent designated monopolies from engaging in anticompetitive practices

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Services Investment Policies Competition Policies SMEs

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SMEs’ export contribution is limited

34.8 23.0 22.7 11.8 11.3 4.4 2.8 2.2 2.1

Source: World Bank staff calculations SME share of sector exports, percent

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Sectors that will grow because trade agreements have limited SMEs presence

Textiles Metals Apparel Chemicals Transport … Other manuf. Food, beverages, tobacco Electrical equipment Machinery

5 10 15 20 25 30 35 40 5 10 15 20 25 SME share in sector exports TPP export gains by 2030, USD billions

SME share in sector exports vs TPP export gains by 2030 in USD billions Source: World Bank staff calculations

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SMEs’ productivity gap needs to narrow

81 311 37 296 59 227 62 339 83 320 50 533 94 296 106 262 18 157

200 400 600 Transport equipment Textiles Other manufacturing Metals Machinery Food, beverages, tobacco Electrical equipment Chemicals Apparel Large SME

Source: Economic Census (2011), World Bank staff calculations

Median labour productivity by sector and size

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Some policy options

Assess the effectiveness of the SMEs masterplan to strengthen it Review current R&D support programs Mutual recognition in standards and technical regulations with other members Develop Supplier development programs

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In conclusion

Malaysia has developed in large part thanks to trade agreements New wave of trade agreements offers a lot of potential But will require domestic reforms to reap their benefits… …And government support to mitigate the challenges

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Terima kasih!

RAFAEL MUNOZ MORENO rmunozmoreno@worldbank.org