Malaysia Economic Monitor The Quest for Productivity Growth 1 - PowerPoint PPT Presentation

Malaysia Economic Monitor The Quest for Productivity Growth 1

Contents  RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK  External environment  Domestic economic developments  Outlook  THE QUEST FOR PRODUCTIVITY GROWTH  Productivity Macroeconomic overview  Productivity Country Benchmarking  Productivity of Manufacturing Firms 2

Sluggish global economic growth… Annual growth rate, % 6.0 Previous estimate (Jan. 2016) 5.0 4.0 3.0 2.0 1.0 0.0 2015 2016f 2017f 2018f 2015 2016f 2017f 2018f 2015 2016f 2017f 2018f Global Advanced EM and Developing Source: World Bank staff calculations 3

… commodity prices bottoming up… Commodity Price Indices 140 120 100 80 60 40 Energy Non-energy 20 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Source: World Bank Commodity Price Data (Pink Sheet). 4

…and the commodity balance stabilizes Balances, % of GDP (last four quarters) 15 Commodity Balance 13 Non-Commodity CA Balance 11 9 7 5 3 1 -1 -3 -5 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 Source: CEIC, DOSM, World Bank staff calculations 5

The current account balance has increased Balances, % of GDP (last four quarters) Current Transfers Primary and Secondary Income 20.0 Services Balance Goods Balance Current Account 15.0 10.0 5.0 1.9 0.6 0.0 -5.0 -10.0 -15.0 Source: World Bank staff calculations 6

Fiscal consolidation continues despite lower oil-related revenues Balances of the Federal Government, percent of GDP 0 -1 -2 -3 -3.0 -3.1 -3.2 -3.4 -4 -3.8 -4.3 -5 -4.7 -5.3 -6 -7 -6.7 -8 2009 2010 2011 2012 2013 2014 2015 2016 2017f Source: MOF, World Bank staff calculations 7

GDP Growth remains resilient supported by private consumption Contribution to GDP, Y/Y 12.0 Private consumption Fixed investment Change in inventories 10.0 Government Net exports Real GDP 8.0 6.0 4.0 2.0 0.0 -2.0 -4.0 Source: CEIC, DOSM, World Bank staff calculations 8

Households’ credit growth remained on a downward trend Loans outstanding (banking system); y/y change of 12-mth moving averages,% Passenger cars Residential property 16.0 Personal use Credit cards Total, Households 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Source: BNM, World Bank staff calculations 9

Portfolio outflows were registered in Q3 Portfolio flows, RM billion 25 Residents Non-residents Net portfolio flows 20 15 10 5 0 -5 -10 -15 -20 -25 -30 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Source: CEIC, DOSM, World Bank staff calculations 10

Among broad depreciation of currencies US$/ currency, Rebase Jan 2016= 100 108 106 104 102 100 98 96 94 Thai Baht Philippines Peso Indonesia Rupiah 92 Singapore Dollar Malaysia Ringgit 90 Source: CEIC, BNM, World Bank staff calculations Note: December data as at 16 December 2016 11

Weak but growing: • Global economic growth • Commodity prices • Global trade But higher uncertainty: • Expect volatility 12

GDP growth expected to slowly recover in 2016 Change from last year, percent 7.0 6 6.0 5.5 5 5.0 4.7 4.5 4.3 4.2 4.0 3.0 2.0 1.0 0.0 2012 2013 2014 2015 2016f 2017f 2018f Source: CEIC, DOSM, World Bank staff projections 13

Transforming urban transport The Quest for Productivity Growth 14

Global TFP growth has been slowing down post the global financial crisis… Sources of world economic growth, annual growth rate, % 4.0 3.5 Capital Stock Labor TFP 3.0 1.1 0.8 2.5 0.5 2.0 1.5 1.0 0.5 0.0 -0.3 0.0 -0.5 1990-1995 1996-2000 2001-2005 2006-2010 2011-2014 Source: World Development Indicators (WDI), World Bank staff calculations 15

and the deceleration has been broad- based across all level of incomes Sources of world economic growth, annual growth rate, % 7 Capital Stock 6 Labour TFP 5 4 3 2 1 0 1996-2000 2001-2005 2006-2010 2011-2014 1996-2000 2001-2005 2006-2010 2011-2014 1996-2000 2001-2005 2006-2010 2011-2014 -1 High income Middle income Lower middle income Source: WDI, World Bank staff calculations 16

Malaysian factor accumulation key for growth Contribution to annual growth rate, % 10.0 Capital Stock Labour TFP 8.0 3.5 6.0 2.2 2.7 2.0 4.0 1.0 2.1 1.5 1.9 2.1 2.0 3.8 1.8 1.7 1.3 1.1 0.0 -0.3 -2.0 Source: WDI, World staff calculations 17

Malaysia’s TFP growth below high income regional economies Contribution to annual growth rate, % (1990-2014) 9.0 8.0 Capital Stock Labour TFP 7.0 4.4 6.0 5.0 1.8 2.2 2.1 2.3 4.0 2.2 1.1 3.0 2.0 1.9 1.4 0.9 1.1 2.0 3.0 1.0 2.0 2.0 1.9 1.9 1.8 0.0 Source: WDI, World Bank staff calculations 18

Labour productivity in Malaysia is lower than many regional countries… Value added growth per worker, annual growth rate, % (1990-2014) Change in Share of Working Age Population Change in Participation Rate 5.00 Change in Employment rate Change in Productivity 4.00 3.00 2.00 3.95 3.39 3.08 2.78 2.65 1.00 0.00 -1.00 Singapore Korea Thailand Turkey Malaysia Source: WDI, World staff calculations 19

…but above other peer countries Value added growth per worker, annual growth rate, % (1990-2014) 2.58 2.07 1.11 0.67 0.24 Indonesia Chile Brazil Peru Mexico Source: WDI, World staff calculations 20

Prior to the 1998 AFC, sectors with higher labour productivity created more employment Value added growth per worker by sector, % (1990-1998) 2.00 Productivity Mining *Other activities - Finance, 1.50 business services, real estate and Other activities* government services 1.00 Wholesale & retail Manufacturing 0.50 Agriculture 0.00 -1.20 -1.00 -0.80 -0.60 -0.40 -0.20 0.00 0.20 0.40 0.60 -0.50 -1.00 Employment Source: WDI, World Bank staff calculations 21

After 1998, labour productivity reduced and destroyed employment in manufacturing Value added growth per worker by sector, % (1999-2014) 2.00 Productivity *Other activities - Finance, business services, real estate and government 1.50 services 1.00 Other activities* Manufacturing 0.50 Wholesale & Agriculture retail 0.00 -1.50 -1.00 -0.50 0.00 0.50 1.00 -0.50 Mining -1.00 Employment Source: WDI, World Bank staff calculations 22

Higher productivity, key for raising income markedly in the long-run GDP per capita, Malaysia/ Average high-income economies, % 100 90 Baseline: TFP growth = 1.8% Scenario 1 (S1): TFP growth = 2.3% 80 Scenario 2 (S2): S1 + ∆ labour force 70 Scenario 3 (S3): S2 + human capital + investment 60 50 90.8 40 30 48.4 20 39.7 28.6 22.2 10 0 Source: WDI, World staff calculations 23

Raising productivity should be complemented by improvement in other areas… Female labour force participation, % Investment as share of GDP, % 60 30 55 28 50 26 45 24 40 22 35 20 30 2010 2011 2012 2013 2014 Historical 2010 2011 2012 2013 2014 11MP Source: DOSM, WDI, World Bank staff calculations 24

Sustained employment, in difficult sales environment Real employment growth; Real annual sales growth; Labour productivity growth, %, 2012-2014 10 8 6 9.1 4 5.4 5.2 2 3.6 3.0 2.8 2.7 0.2 0 -0.7 -2.9 -3.4 -2 -5.3 Employment -4 Real annual sales -6 Labour productivity -8 Malaysia High-income & ASEAN China OECD Source: World Bank Enterprise Surveys 25

Large firms lead recent productivity decline… Annual labour productivity growth, %, 2012- 2014 2.0 1.0 0.0 -3.2 -2.0 -4.0 -11.6 -6.0 -8.0 -10.0 -12.0 -14.0 Small (<20) Medium (20-99) Large (>100) Source: World Bank Enterprise Surveys 26

…mainly among exporting firms particularly in Malaysia Annual labour productivity growth, %, 2012- 2014 5.0 0.0 -5.0 -10.0 Exporter Non-exporter -15.0 Malaysia High-income & ASEAN China OECD Source: World Bank Enterprise Surveys 27

Services performed better than manufacturing Annual labour productivity growth, %, (2012-2014) Manufacturing Services 4.0 8.0 2.0 4.0 0.0 0.0 -4.0 -2.0 -8.0 -4.0 -12.0 -6.0 -16.0 -8.0 Source: World Bank Enterprise Surveys 28

Manufacturing firms in Malaysia have higher variability of TFP… Manufacturing firms TFP (2012-2014) 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 25th percentile Median 75th percentile 0.0 Malaysia High-income & ASEAN China OECD Source: World Bank Enterprise Surveys 29

…with much of the variability of TFP explained by large and small firms Manufacturing firms TFP (2012-2014) 25th percentile Median 75th percentile 6 5 4 3 2 1 0 Malaysia High-income & OECD ASEAN China Malaysia High-income & OECD ASEAN China Malaysia High-income & OECD ASEAN China Small (<20) Medium (20-99) Large (>100) Source: World staff Enterprise Surveys 30

lower productivity mainly explained by non-exporters Manufacturing firms TFP (2012-2014) 6 25th percentile Median 5 75th percentile 4 3 2 1 0 Malaysia ASEAN China Malaysia ASEAN China High-income & OECD High-income & OECD Non-exporters Exporters Source: World Bank Enterprise Surveys 31