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

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

Jul 31, 2023 158 likes •734 views

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

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Malaysia Economic Monitor The Quest for Productivity Growth

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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

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Sluggish global economic growth…

Source: World Bank staff calculations

Annual growth rate, %

0.0 1.0 2.0 3.0 4.0 5.0 6.0 2015 2016f 2017f 2018f 2015 2016f 2017f 2018f 2015 2016f 2017f 2018f Global Advanced EM and Developing

Previous estimate (Jan. 2016)

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… commodity prices bottoming up…

Source: World Bank Commodity Price Data (Pink Sheet).

Commodity Price Indices

20 40 60 80 100 120 140 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 Energy Non-energy

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…and the commodity balance stabilizes

Source: CEIC, DOSM, World Bank staff calculations

Balances, % of GDP (last four quarters)

  • 5
  • 3
  • 1

1 3 5 7 9 11 13 15 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 Commodity Balance Non-Commodity CA Balance

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The current account balance has increased

Source: World Bank staff calculations

Balances, % of GDP (last four quarters)

0.6 1.9

  • 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

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Fiscal consolidation continues despite lower

  • il-related revenues

Source: MOF, World Bank staff calculations

Balances of the Federal Government, percent of GDP

  • 6.7
  • 5.3
  • 4.7
  • 4.3
  • 3.8
  • 3.4
  • 3.2
  • 3.1
  • 3.0
  • 8
  • 7
  • 6
  • 5
  • 4
  • 3
  • 2
  • 1

2009 2010 2011 2012 2013 2014 2015 2016 2017f

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GDP Growth remains resilient supported by private consumption

Source: CEIC, DOSM, World Bank staff calculations

Contribution to GDP, Y/Y

  • 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

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Households’ credit growth remained on a downward trend

Source: BNM, World Bank staff calculations

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

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

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Portfolio outflows were registered in Q3

Source: CEIC, DOSM, World Bank staff calculations

Portfolio flows, RM billion

  • 30
  • 25
  • 20
  • 15
  • 10
  • 5

5 10 15 20 25 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 Residents Non-residents Net portfolio flows

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Among broad depreciation of currencies

Source: CEIC, BNM, World Bank staff calculations Note: December data as at 16 December 2016

US$/ currency, Rebase Jan 2016= 100

90 92 94 96 98 100 102 104 106 108 Thai Baht Philippines Peso Indonesia Rupiah Singapore Dollar Malaysia Ringgit

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Weak but growing:

  • Global economic growth
  • Commodity prices
  • Global trade

But higher uncertainty:

  • Expect volatility
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GDP growth expected to slowly recover in 2016

Source: CEIC, DOSM, World Bank staff projections

Change from last year, percent

5.5 4.7 6 5 4.2 4.3 4.5 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 2012 2013 2014 2015 2016f 2017f 2018f

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Transforming urban transport

The Quest for Productivity Growth

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Global TFP growth has been slowing down post the global financial crisis…

0.0 1.1 0.8

  • 0.3

0.5

  • 0.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 1990-1995 1996-2000 2001-2005 2006-2010 2011-2014

Capital Stock Labor TFP

Source: World Development Indicators (WDI), World Bank staff calculations

Sources of world economic growth, annual growth rate, %

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and the deceleration has been broad- based across all level of incomes

  • 1

1 2 3 4 5 6 7 1996-2000 2001-2005 2006-2010 2011-2014 1996-2000 2001-2005 2006-2010 2011-2014 1996-2000 2001-2005 2006-2010 2011-2014 High income Middle income Lower middle income Capital Stock Labour TFP

Source: WDI, World Bank staff calculations

Sources of world economic growth, annual growth rate, %

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Malaysian factor accumulation key for growth

Source: WDI, World staff calculations

3.8 1.7 1.1 1.3 1.8 2.2 2.1 2.1 1.9 1.5 3.5

  • 0.3

2.7 1.0 2.0

  • 2.0

0.0 2.0 4.0 6.0 8.0 10.0 Capital Stock Labour TFP

Contribution to annual growth rate, %

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Malaysia’s TFP growth below high income regional economies

Source: WDI, World Bank staff calculations

2.0 2.0 1.9 1.9 1.8 3.0 2.0 0.9 1.9 1.1 1.4 1.1 1.8 2.2 2.2 2.3 2.1 4.4 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 Capital Stock Labour TFP

Contribution to annual growth rate, % (1990-2014)

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Labour productivity in Malaysia is lower than many regional countries…

Source: WDI, World staff calculations

3.95 3.39 3.08 2.78 2.65

  • 1.00

0.00 1.00 2.00 3.00 4.00 5.00 Singapore Korea Thailand Turkey Malaysia Change in Share of Working Age Population Change in Participation Rate Change in Employment rate Change in Productivity

Value added growth per worker, annual growth rate, % (1990-2014)

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…but above other peer countries

Source: WDI, World staff calculations

2.58 2.07 1.11 0.67 0.24 Indonesia Chile Brazil Peru Mexico

Value added growth per worker, annual growth rate, % (1990-2014)

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Prior to the 1998 AFC, sectors with higher labour productivity created more employment

Source: WDI, World Bank staff calculations

  • 1.00
  • 0.50

0.00 0.50 1.00 1.50 2.00

  • 1.20
  • 1.00
  • 0.80
  • 0.60
  • 0.40
  • 0.20

0.00 0.20 0.40 0.60 Productivity Employment Manufacturing Other activities* Wholesale & retail Mining Agriculture

*Other activities - Finance, business services, real estate and government services

Value added growth per worker by sector, % (1990-1998)

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After 1998, labour productivity reduced and destroyed employment in manufacturing

Source: WDI, World Bank staff calculations

  • 1.00
  • 0.50

0.00 0.50 1.00 1.50 2.00

  • 1.50
  • 1.00
  • 0.50

0.00 0.50 1.00 Productivity Employment Manufacturing Other activities* Wholesale & retail Mining Agriculture

*Other activities - Finance, business services, real estate and government services

Value added growth per worker by sector, % (1999-2014)

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Higher productivity, key for raising income markedly in the long-run

Source: WDI, World staff calculations

GDP per capita, Malaysia/ Average high-income economies, %

22.2 28.6 39.7 48.4 90.8 10 20 30 40 50 60 70 80 90 100

Baseline: TFP growth = 1.8% Scenario 1 (S1): TFP growth = 2.3% Scenario 2 (S2): S1 + ∆ labour force Scenario 3 (S3): S2 + human capital + investment

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Raising productivity should be complemented by improvement in other areas…

Source: DOSM, WDI, World Bank staff calculations

Female labour force participation, % Investment as share of GDP, %

30 35 40 45 50 55 60 2010 2011 2012 2013 2014 11MP 20 22 24 26 28 30 2010 2011 2012 2013 2014 Historical

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Sustained employment, in difficult sales environment

Source: World Bank Enterprise Surveys

Real employment growth; Real annual sales growth; Labour productivity growth, %, 2012-2014

2.8 3.6 3.0 9.1 0.2 5.2

  • 2.9

5.4

  • 0.7

2.7

  • 5.3
  • 3.4
  • 8
  • 6
  • 4
  • 2

2 4 6 8 10 Malaysia High-income & OECD ASEAN China Employment Real annual sales Labour productivity

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Large firms lead recent productivity decline…

Source: World Bank Enterprise Surveys

Annual labour productivity growth, %, 2012- 2014

1.0

  • 3.2
  • 11.6
  • 14.0
  • 12.0
  • 10.0
  • 8.0
  • 6.0
  • 4.0
  • 2.0

0.0 2.0 Small (<20) Medium (20-99) Large (>100)

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…mainly among exporting firms particularly in Malaysia

Source: World Bank Enterprise Surveys

Annual labour productivity growth, %, 2012- 2014

  • 15.0
  • 10.0
  • 5.0

0.0 5.0 Malaysia High-income & OECD ASEAN China Exporter Non-exporter

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Services performed better than manufacturing

Source: World Bank Enterprise Surveys

Annual labour productivity growth, %, (2012-2014)

  • 16.0
  • 12.0
  • 8.0
  • 4.0

0.0 4.0 8.0

  • 8.0
  • 6.0
  • 4.0
  • 2.0

0.0 2.0 4.0 Manufacturing Services

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Manufacturing firms in Malaysia have higher variability of TFP…

Source: World Bank Enterprise Surveys

Manufacturing firms TFP (2012-2014)

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 Malaysia High-income & OECD ASEAN China 25th percentile Median 75th percentile

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…with much of the variability of TFP explained by large and small firms

Source: World staff Enterprise Surveys

Manufacturing firms TFP (2012-2014)

1 2 3 4 5 6 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) 25th percentile Median 75th percentile

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lower productivity mainly explained by non-exporters

Source: World Bank Enterprise Surveys

Manufacturing firms TFP (2012-2014)

1 2 3 4 5 6 Malaysia High-income & OECD ASEAN China Malaysia High-income & OECD ASEAN China Non-exporters Exporters 25th percentile Median 75th percentile

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Services productivity in Malaysia seem less productive than comparator countries

Source: World Bank Enterprise Surveys

Ratio of median labour productivity (Services/ Manufacturing)

0.0 0.5 1.0 1.5 2.0 2.5 Malaysia High-income & OECD ASEAN China Malaysia High-income & OECD ASEAN China Malaysia High-income & OECD ASEAN China Small Medium Large

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Benchmarking Some Potential Drivers of Productivity

Skills Infrastructure Innovation Efficiency

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Skills Infrastructure Innovation Efficiency

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Malaysia manufacturing firms have a higher share of secondary educated workers…

Source: World Bank Enterprise Surveys

Share of secondary educated workers, % of total workers

20 40 60 80 100 Malaysia High-income & OECD ASEAN China Malaysia High-income & OECD ASEAN China Manufacturing Services

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Malaysian firms have lower vacancy rates but report more difficulties in finding skills

Source: World Bank Enterprise Surveys

Firms that find difficult to find skills, % 5 10 15 20 25 30 35 40 45 Total Small (<20) Medium (20-99) Large (>100) Malaysia ASEAN 20 40 60 80 100 Malaysia ASEAN Vacancy rate, %

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Malaysian firms less likely to provide training and train fewer workers, mainly small firms

Source: World Bank Enterprise Surveys

20 40 60 80 100 Malaysia High-income & OECD ASEAN China Malaysia High-income & OECD ASEAN China Firms offering formal training Workers offered formal training 10 20 30 40 50 60 Small (<20) Medium (20-99) Large (>100) Small (<20) Medium (20-99) Large (>100) Firms offering formal training Workers offered formal training Firms that offer training, % Workers trained, %

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Malaysian SMEs that provide training have higher labour productivity and TFP

Source: World Bank Enterprise Surveys

Median sales per worker, USD Median TFP, %

10,000 20,000 30,000 40,000 50,000 60,000 Small (<20) Medium (20-99) Large (>100) No training Training 0.0 1.0 2.0 3.0 4.0 5.0 Small (<20) Medium (20- 99) Large (>100) No training Training

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Skills Infrastructure Innovation Efficiency

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Productivity is positively associated with innovation

Source: World Bank Enterprise Surveys

Median sales per worker, USD

5,000 10,000 15,000 20,000 25,000 30,000 35,000 Small (<20) Medium (20-99) Large (>100) No innovation Any innovation

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Malaysian firms mainly focus on non-technical innovation

Source: World Bank Enterprise Surveys

Percentage of firms that innovate, %

10 20 30 40 50 Firms with technical innovation Firms with non-technical innovation Firms who spent on formal R&D Malaysia ASEAN

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Skills Infrastructure Innovation Efficiency

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Malaysia’s infrastructure compares well although other MICs are catching up

Source: World Economic Forum Global Competitiveness Index

Score (1-7), 2016-2017 and 2006-2007

1 2 3 4 5 6 7 2006-2007 2016-2017

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Malaysia’s logistics performance compares well with other MICs

Source: World Bank Logistics Performance Index

Score (1-5), 2016 and 2007

1 2 3 4 5 2007 2016

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Malaysian firms more likely to have water shortages and less power outages

Source: World Bank Enterprise Surveys

Manufacturing firms experiencing shortages/ outages, %

10 20 30 40 Malaysia High-income & OECD ASEAN China Malaysia High-income & OECD ASEAN China At least 1 water shortage in a month At least 1 power outage in a month

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Skills Infrastructure Innovation Efficiency

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Malaysian firms face less regulatory burden…

Source: World Bank Enterprise Surveys

Days, number of visits, time dealing with regulations

10 20 30 40 50 Malaysia High-income & OECD ASEAN China Malaysia High-income & OECD ASEAN China Malaysia High-income & OECD ASEAN China Malaysia High-income & OECD ASEAN China Time spent dealing with regulations (%)

  • Avg. visits or

meetings required with tax officials Days to obtain import license Days to obtain

  • perating license
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…although regulatory burden increases with firm size

Source: World Bank Enterprise Surveys

Average senior management time spent dealing with regulations, %

2 4 6 8 10 12 14 Small Medium Large Small Medium Large Small Medium Large Small Medium Large Malaysia High-income & OECD ASEAN China

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Malaysian firms mention regulatory burdens as main constraints in the business environment

Source: World Bank Enterprise Surveys

Ranking of business environment obstacles, percent of firms

5 10 15 20 25 30

Practices Informal Sector Licenses & Permits Tax Rates Tax Administration Political instability Corruption Labor regulations Access to Land Customs & Trade Reg Electricity Transportation Access to Finance Courts Crime, Theft & Disorder Inadequately educated workforce

Malaysia High-income & OECD

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The proportion of Malaysian firms that are credit constrained is similar to comparators

Source: World Bank Enterprise Surveys

Firms financially constrained (fully or partially), % of firms

10 20 30 40 50 60 Malaysia High-income & OECD ASEAN China

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Gap between most and less productive manufacturing firms declined slightly

Source: DOSM, World Bank staff calculations

Labour productivity growth, %, 2005-2014

9.4 2.8

  • 1.9
  • 6.1
  • 8
  • 6
  • 4
  • 2

2 4 6 8 10 12 2005-2010 2010-2014 Above median Below median

Productivity gap: 11.3 ppt Productivity gap: 8.9 ppt

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Domestic-oriented manufacturing firms saw smaller decline in labour productivity growth

Source: DOSM, World Bank staff calculations

Labour productivity growth, %, 2005-2014

5.4

  • 1.5

3.8

  • 2.6
  • 3
  • 2
  • 1

1 2 3 4 5 6 2005-2010 2010-2014 2005-2010 2010-2014 Domestic-oriented Export-oriented

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Distortions in output markets seem to undermine productivity growth

Source: DOSM, World Bank staff calculations

Productivity and factors distortions Productivity and output market distortions

  • 2

2 4 6 8

  • 4
  • 2

2 Physical productivity, log(TFPQ) l_tau_k_wedge lpoly smooth: l_tau_k_wedge

  • 4
  • 2

2 4

  • 4
  • 2

2 Physical productivity, log(TFPQ) l_tau_y_wedge lpoly smooth: l_tau_y_wedge

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Removing distortions to the 1997 US level could increase productivity by 23 percent

Source: DOSM, World Bank staff calculations

TFP gains by misallocation,% TFP gains with US efficiency

42.9 75.7 78 86.6 127.5 20 40 60 80 100 120 140 22.8 24.5 30.5 59.2 10 20 30 40 50 60 70 Malaysia 2014 Turkey 2014 China 2005 India 1994

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Conclusions

 Productivity growth in Malaysia has declined since 2008, in part because

slowdown in external demand.

 Malaysia shows relatively higher divergence in productivity of firms

 In the same manufacturing industry, which can be explained by misallocation of

resources across firms.

 Between large and small firms, which can be explained by underperforming

small firms => need to raise productivity of domestic laggard SMEs

 Misallocation in output markets undermine productivity

 Productivity benchmarking

 Good average education but skills hard to find => training  Innovation but in non-technical areas => technology absorption  Infrastructure compares well => keep the edge on logistics performance  Efficiency limited by misallocation and perceived regulations => competition

 Closing the gap with high income economies will require to accelerate

productivity growth, while also keeping factor and human capital accumulation

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Terima kasih!

RAFAEL MUNOZ MORENO rmunozmoreno@worldbank.org