[PPT] - SOCIO SOCIO-ECONOMIC ECONOMIC RE RESE SEAR ARCH CH CE CENTR PowerPoint Presentation

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社会经济研究中心

SOCIO SOCIO-ECONOMIC ECONOMIC RE RESE SEAR ARCH CH CE CENTR NTRE Qu Quar arte terly Eco Economy nomy Trac acker er (A (Apr pr-Jun un 2017 2017) Sustaining momentum

5 Jul uly 2017 2017

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Socio-Economic Research Centre 1

Global economy is gaining momentum
A broadening base for domestic growth
But, there are risks to the growth story
Conclusion

Age Agend nda

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Socio-Economic Research Centre 2

The global economy is in a “synchronized recovery” But, risks remain

Be wary of political developments, policy, regulatory and geopolitical risks
Inward-looking policies, UK Brexit negotiations and the Gulf crisis
Tighter global financial conditions arising from higher US interest rates
China’s build-up of debt is of an enduring concern

Malaysia: Policy balancing to sustain growth & preserve economic resilience

Stay on the path of fiscal consolidation to build fiscal space and contain debt
Carefully calibrate monetary policy to anchor growth amid financial volatility
Continued vigilance on financial risks through macroprudential measures
Leveraging on productivity, innovation and digitalisation
A broad-based economic upswing
Entrenching the recovery calls for a delicate balancing-act between monetary

and fiscal policy

Avoid policy missteps

Key ey messa messages ges

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Socio-Economic Research Centre 3

Growth is becoming more synchronised.
The IMF raised 2017’s global growth estimate to 3.5% from 3.4% previously while keeping

2018’s at 3.6% (3.1% in 2016).

Industrial activity, exports and global trade have picked up.
Sustained domestic demand and stronger exports underpinned growth in Asia.

Globa Global ec econ

nomic
mic act

activ ivity ity exp xpan ansion sion co cont ntinue inues

2.0% 1.8% 1.6% 6.8% 4.5% 4.9% 3.0% 2.4% 2.9% 2.1% 1.7% 1.3% 6.9% 5.6% 5.0% 3.3% 2.9% 2.7% 2.3% 1.7% 1.2% 6.6% 4.5% 5.1% 3.2% 2.7% 2.2% US Euro Area Japan China Malaysia Indonesia Thailand South Korea Singapore

Real GDP growth (% YoY)

4Q16 1Q17 2017e

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Socio-Economic Research Centre 4

OECD CLIs show stable growth momentum PMI for manufacturing & services continued to expand

Source: OECD; Markit, DOS, Malaysia; NBS China; Singapore DOS; Bank of Thailand; MOTIE Korea

97 98 99 100 101 102 2010 Jan Jul 2011 Jan Jul 2012 Jan Jul 2013 Jan Jul 2014 Jan Jul 2015 Jan Jul 2016 Jan Jul 2017 Jan Total OECD CLI US CLI Euro Area CLI Japan CLI

Rising consumer and business confidence

45 50 55 60 2010 Jan Jul 2011 Jan Jul 2012 Jan Jul 2013 Jan Jul 2014 Jan Jul 2015 Jan Jul 2016 Jan Jul 2017 Jan Global Manufacturing PMI Global Services PMI 97 98 99 100 101 102 2010 Jan Jul 2011 Jan Jul 2012 Jan Jul 2013 Jan Jul 2014 Jan Jul 2015 Jan Jul 2016 Jan Jul 2017 Jan OECD-CCI OECD-BCI

Globa Global ac activi tivity ty indica indicato tors ga gaining ining mome moment ntum um

Regional exports in a synchronized recovery

40%
30%
20%
10%

0% 10% 20% 30% 2016 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2017 Jan Feb Mar Apr May Malaysia (yoy) China (USD, yoy) Singapore (yoy) Thailand (USD, yoy) South Korea (USD, yoy)

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Socio-Economic Research Centre 5

Central banks’ hawkish comments signal the beginning of the end of ultra-loose monetary

policy.

Headline inflation have generally risen amid the uneven pace of oil prices.
The Fed still on course for the third rate hike this year; will begin to pare down its balance

sheet if the conditions were right.

0.6
0.4
0.2

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 2011 2012 2013 2014 2015 2016 2017 Jun % Federal Funds Rate ECB's Desposit Facility BoJ Policy Rate

0.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 2011 Jan Jul 2012 Jan Jul 2013 Jan Jul 2014 Jan Jul 2015 Jan Jul 2016 Jan Jul 2017 Jan % US 10-Yr Treasury Yield Curve Rates Japan 10-Yr Govt Bond Interest Rates Germany 10-Yr Govt Bond Interest Rate

The Fed’s rate hike cycle continues; Is BoJ and ECB ready to act?

Source: Federal Reserve; ECB; BoJ; U.S. BLS; Eurostat; Statistics Bureau, Japan; U.S. Department of the Treasury; MOF, Japan

Higher bond yields differential in 2017

Globa Global ce cent ntral al banks banks signa signal an an end end to to ea easy sy-mon money ey er era? a?

2%
1%

0% 1% 2% 3% 4% 5% 2011 Jan Jul 2012 Jan Jul 2013 Jan Jul 2014 Jan Jul 2015 Jan Jul 2016 Jan Jul 2017 Jan United States (yoy) Japan (yoy) Euro Area (yoy)

Inflation eased after 1Q17

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Socio-Economic Research Centre 6

Lack of financial

versight
The impending rollback of the Dodd-Frank Act
Create the circumstances for financial instability due to excessive

risk-taking by banks and brokerages

Market valuations

The stock market value is nearly 150% higher than the nation’s

GDP (WB)

S&P 500 is trading at 25x trailing 12-month earnings (historical

average of 16)

83% of FM said the US stocks are overvalued (BoA)

Fading hopes

Policy outcomes fall short of expectations or fizzled out
Rising US interest rates cause reassessment of price-earnings that

could send asset prices instability

Bloated debt

World debt at US$215 trillion or 325% GDP
Rising interest rates is a growing burden on debt-ridden emerging

economies

Canada and China would face the highest risk of a financial crisis,
wing to elevated debt levels

Wha hat co could uld trig trigge ger an anot

the

her finan financial cial cr crisi isis? s?

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Socio-Economic Research Centre 7

Resilient consumer spending despite grapping with high cost of living and inflation.
Stronger private investment growth, underpinned by capital spending in the manufacturing

and services sectors.

We have raised this year GDP growth estimate to 5.0% (4.3% previously) and 4.9% in 2018

(4.6% previously).

1Q17’s GDP growth higher than expected Private investment bounced back strongly in 1Q17

The he Malaysi alaysian an ec econ

nomy
my ge

gets ts to to a roa

aring

ring sta start in in 2017 2017

Unrelenting private consumption growth

5.8 4.9 4.7 4.6 4.1 4.0 4.3 4.5 5.6 2015Q1 Q2 Q3 Q4 2016Q1 Q2 Q3 Q4 2017Q1 Real GDP (% YoY)

Source: Department of Statistics, Malaysia

8.9 6.4 4.1 4.9 5.2 6.2 6.3 6.1 6.6 2015Q1 Q2 Q3 Q4 2016Q1 Q2 Q3 Q4 2017Q1 Real Private Consumption (% YoY) 11.5 3.8 5.3 4.7 2.1 5.6 4.8 4.9 12.9 2015Q1 Q2 Q3 Q4 2016Q1 Q2 Q3 Q4 2017Q1 Real Private Investment (% YoY)

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Socio-Economic Research Centre 8

Industrial production grew steadily Imports of consumption, investment and intermediate goods Manufacturing sales trending higher

Source: Bank Negara Malaysia; Department of Statistics, Malaysia

Malaysia’s leading index suggests positive economic prospects

6%
4%
2%

0% 2% 4% 6% 8% 10% 12% 2011 Jan Apr Jul Oct 2012 Jan Apr Jul Oct 2013 Jan Apr Jul Oct 2014 Jan Apr Jul Oct 2015 Jan Apr Jul Oct 2016 Jan Apr Jul Oct 2017 Jan Apr Industrial Production (yoy)

10%
5%

0% 5% 10% 15% 20% 2011 Jan Apr Jul Oct 2012 Jan Apr Jul Oct 2013 Jan Apr Jul Oct 2014 Jan Apr Jul Oct 2015 Jan Apr Jul Oct 2016 Jan Apr Jul Oct 2017 Jan Apr Manufacturing Sales (yoy)

Econ Economic

mic ac

activi tivity ty indica indicato tors sho show co cont ntinue inued exp xpan ansion sion

4%
3%
2%
1%

0% 1% 2% 3% 4% 112 113 114 115 116 117 118 119 120 2014 Jan Apr Jul Oct 2015 Jan Apr Jul Oct 2016 Jan Apr Jul Oct 2017 Jan Apr RM billion Leading Index (LHS) Changes in Leading Index (yoy) (RHS)

40%
20%

0% 20% 40% 60% 80% 100% 2014 Jan Apr Jul Oct 2015 Jan Apr Jul Oct 2016 Jan Apr Jul Oct 2017 Jan Apr Import of Consumption Goods (yoy) Import of Investment Goods (yoy) Import of Intermediate Goods (yoy)

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Socio-Economic Research Centre 9

Business loan growth eases; household loan steady Loan applications growth back to positive Loan approvals fell to negative in May Loan disbursements growth remains uneven

Source: Bank Negara Malaysia

0% 2% 4% 6% 8% 10% 12% 14% 2014 Jan Apr Jul Oct 2015 Jan Apr Jul Oct 2016 Jan Apr Jul Oct 2017 Jan Apr Household Sector (yoy) Business Sector (yoy)

20%
15%
10%
5%

0% 5% 10% 15% 20% 25% 2014 Jan Apr Jul Oct 2015 Jan Apr Jul Oct 2016 Jan Apr Jul Oct 2017 Jan Apr Loan Application (yoy)

30%
20%
10%

0% 10% 20% 30% 40% 2014 Jan Apr Jul Oct 2015 Jan Apr Jul Oct 2016 Jan Apr Jul Oct 2017 Jan Apr Loan Approval (yoy)

15%
10%
5%

0% 5% 10% 15% 20% 25% 2014 Jan Apr Jul Oct 2015 Jan Apr Jul Oct 2016 Jan Apr Jul Oct 2017 Jan Apr Loan Disbursement (yoy)

Hou Househ sehold

ld and

and bu business siness loan loan growth th tr tren end

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Socio-Economic Research Centre

20 40 60 80 100 120 140 160 2010 2011 2012 2013 2014 2015 2016 2017 (Jan-Mar) RM billion Gross Foreign Direct Investment (FDI) Gross Direct Investment Abroad (DIA)

10

Source: Bank Negara Malaysia; MIDA

20.9% 13.0% 8.7% 6.3% 2.0% 2011 2012 2013 2014 2015 2016 2017 (Jan-Mar) Singapore Japan Netherlands United States China

FDI stock in Malaysia: Diversified investors Gross FDI is still higher than the Malaysia’s investments abroad

For

reign

eign dir direc ect in invest estmen ment stil still flo flowing ing in in de despite spite he head adwi wind nds

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Socio-Economic Research Centre 11

Gross exports growth estimate revised higher to 14.5% in 2017 (from 5.0% previously).
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 global trade environment threatened by policy uncertainties associated with

Trump’s strong assertive of a free and fair trade policy, targeting at those countries running huge trade surpluses with the US.

Source: Bank Negara Malaysia; Semiconductor Industry Association (SIA); Department of Statistics, Malaysia

20%
10%

0% 10% 20% 30% 40% 50% 2014 Jan Apr Jul Oct 2015 Jan Apr Jul Oct 2016 Jan Apr Jul Oct 2017 Jan Apr Exports (yoy) Imports (yoy)

1Q17’s export growth strongest since 1Q10 … lifted higher exports of E&E products Global semiconductor sales rose unabated…

10%
5%

0% 5% 10% 15% 20% 25% 2014 Jan Apr Jul Oct 2015 Jan Apr Jul Oct 2016 Jan Apr Jul Oct 2017 Jan Apr Global Semiconductor Sales (yoy)

10%
5%

0% 5% 10% 15% 20% 25% 2014 Jan Apr Jul Oct 2015 Jan Apr Jul Oct 2016 Jan Apr Jul Oct 2017 Jan Apr Exports of E&E products (yoy)

Expo Export en engine gine fir fires es up up

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Socio-Economic Research Centre 12

Domestic demand will continue to be the main driver of growth, underpinned primarily by

private sector, aided by stronger exports.

All economic sectors are expected to register positive growth.

Source: Bank Negara Malaysia; SERC * % Share to GDP of 2017 from BNM

Sour Source ces of

f growth

wth: Mo Moving ving on

n tw

two en engine gines

% change, 2010=100 2014 2015 2016 2017 1Q 2017f (BNM) 2017e (SERC) GDP by demand component

Private consumption (54.0%) 7.0 6.0 6.0 6.6 6.0 6.2 Private investment (16.8%) 11.1 6.3 4.3 12.9 4.1 8.9 Public consumption (12.5%) 4.3 4.4 0.9 7.5

0.2

6.3 Public investment (8.3%)

4.7
1.1
0.5

3.2 1.5 2.8 Exports of goods and services (68.4%) 5.0 0.3 1.1 9.8 2.2 7.9 Imports of goods and services (60.3%) 4.0 0.8 1.1 12.9 1.8 10.2

GDP by economic sector

Agriculture (8.0%) 2.0 1.3

5.1

8.3 4.0 5.0 Mining & quarrying (8.7%) 3.3 5.3 2.2 1.6 2.7 1.3 Manufacturing (22.9%) 6.1 4.9 4.4 5.6 4.3 5.7 Construction (4.7%) 11.7 8.2 7.4 6.5 8.0 8.3 Services (54.4%) 6.6 5.1 5.6 5.8 4.9 5.2

Overall GDP 6.0 5.0 4.2 5.6 4.3-4.8 5.0

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Socio-Economic Research Centre 13

Fuel price & exchange rate changes vs. inflation Fuel prices moderated since reaching the peak in March

Source: Bank Negara Malaysia; Department of Statistics, Malaysia; SERC

Headline inflation decelerated to 3.9% yoy in May (4.4% in April; 4.3% in 1Q17), thanks to

moderating transport prices.

Though the headline inflation readings will moderate in 2H17, the pace of price increases

will depend on the volatile global crude oil prices.

We estimate inflation to increase by 3.5-4.0% in 2017, with an average increase of 4.0-4.2%

in 1H before moderating to 3.0-3.5% in 2H.

15%
10%
5%

0% 5% 10% 15% 20% 25% 2011 Jan Apr Jul Oct 2012 Jan Apr Jul Oct 2013 Jan Apr Jul Oct 2014 Jan Apr Jul Oct 2015 Jan Apr Jul Oct 2016 Jan Apr Jul Oct 2017 Jan Apr Food & Non-Alcoholic Beverages (yoy) Housing, Water, Electricity, Gas & Other Fuels (yoy) Transport (yoy) Services (yoy) 2017f: 3.5-4.0% End-Jun 17: RON95 = RM1.89 End-Jun 17: RM/US$: 4.2940

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)

Headline inflation will moderate…

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Socio-Economic Research Centre 14

BNM will face a tough yet decisive balancing act if the Fed takes more aggressive run of rate increases ahead Wary of global environment Risks to growth ‘broadly balanced’

Reaffirm monetary policy is accommodative and supportive of economic activity
Assess the balance of risks between domestic growth and inflation
Cost-induced inflation pressure to ease
Household debt remains high though the debt to GDP eased to 88.4% at end-2016

(89.1% at end-2015)

Risks to global growth arising from threats (protectionism, geopolitical developments,

and commodity price volatility)

Reignite financial market volatility, including exchange rates

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% = 2017f 5.0%  3.5-4.0%  3.25-3.50%  2018f 4.9%  3.0-3.5% 

BNM BNM to to ca carefu efull lly calibr calibrate te mon monet etar ary po poli licy

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Socio-Economic Research Centre

Annually Net Portfolio Investment

100
80
60
40
20

20 40 60 80 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 RM billion Quarterly Net Portfolio Investment

15

Ca Capita pital inflo inflows ws ar are ret etur urning ning to to bonds bonds and and eq equities uities

Source: Bank Negara Malaysia; Bursa Malaysia

4.3 2.7 2.1 0.3

6
4
2

2 4 6 8 2016 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2017 Jan Feb Mar Apr May Jun RM billion

Continued net foreign buying of equities, albeit lower Foreign shareholding of equities and gov’t bonds Foreign reserves rise steadily since end-2016 Net portfolio investment outflows continued in 1Q17 for three consecutive quarters

20 22 24 26 28 30 32 34 36 38 2011 Jan Apr Jul Oct 2012 Jan Apr Jul Oct 2013 Jan Apr Jul Oct 2014 Jan Apr Jul Oct 2015 Jan Apr Jul Oct 2016 Jan Apr Jul Oct 2017 Jan Apr % Share of Government Bonds % Share of Equities 15 June: 98.7 20 40 60 80 100 120 140 160

15
10
5

5 10 15 20 25 2008 Jan Jul 2009 Jan Jul 2010 Jan Jul 2011 Jan Jul 2012 Jan Jul 2013 Jan Jul 2014 Jan Jul 2015 Jan Jul 2016 Jan Jul 2017 Jan RM billion RM billion Monthly Changes in Foreign Reserves (LHS) Foreign Reserves (RHS)

SLIDE 17

Socio-Economic Research Centre 16

The ringgit appreciated against USD and CNY but depreciated against EUR, GBP, THB and SGD Effective exchange rates of ringgit have been stabilizing and potentially recovering

4.3%
0.6%

15.5%

6.9%
2.0%
4.8%

1.2%

6.6%
2.1%

2.4% 4.5%

3.6%
1.2%
0.2%
0.6%
0.9%

6.3% 3.4%

0.6%

2.0% USD EUR GBP JPY SGD THB PHP IDR KRW CNY 30 Jun 2017 2016

Source: Bank of International Settlements; Bank Negara Malaysia

Ring Ringgit git co cont ntinue inues to to sta stabili bilise se but but he head adwi wind nds rema emain in

80 85 90 95 100 105 110 2010 Jan Apr Jul Oct 2011 Jan Apr Jul Oct 2012 Jan Apr Jul Oct 2013 Jan Apr Jul Oct 2014 Jan Apr Jul Oct 2015 Jan Apr Jul Oct 2016 Jan Apr Jul Oct 2017 Jan Apr 2010=100 REER NEER

SLIDE 18

Socio-Economic Research Centre 17

Stay on the path of fiscal consolidation to build fiscal space and control debt Carefully calibrate monetary policy and exchange rate policy

To anchor growth while mindful of global financial conditions
While monetary space remains, global financial conditions could affect the space
The onshore ringgit stabilization measures have bolstered resilience to external shocks
Discourage offshore NDF is consistent with BNM’s long standing policy of non-

internationalization of the ringgit

Near-balanced fiscal budget by 2020 remains challenging
Relatively high federal debt and contingent liabilities would limit fiscal space
Further expenditure rationalization (public sector pension reform & rightsizing of civil

service); identify areas of savings, including duplication of programs

Continuous monitoring of contingent liabilities (End-2016: RM187.3 billion or 15.2% of

GDP)

Pol

lic

icy ba balan ancing cing to to sust sustain ain growth th & pr prese eserve ec econ

nomic
mic

resili esilien ence ce

SLIDE 19

Socio-Economic Research Centre 18

Continued vigilance on financial risks through macroprudential measures Leveraging competitiveness, productivity and innovation

Mitigate increasing cost of doing business, ease regulatory burden
Create a conducive ecosystem to harness a digital and connected economy
Leverage on technology and innovation to increase knowledge-based capital investment

and raise productivity

High value creation manufacturing and services
Relatively high household debt (End-2016: 88.4% of GDP) remains a key vulnerability

that requires careful monitoring

House price growth has moderated to 5.5% as at 4Q16 from 11.8% in 2012 for four

consecutive years

The risk of a sharp decline in house prices should be carefully monitored

Pol

lic

icy ba balan ancing cing to to sust sustain ain growth th & pr prese eserve ec econ

nomic
mic

resili esilien ence ce

SLIDE 20

Socio-Economic Research Centre

2018 2018 Bud Budge get sho should uld foc

cus

us on

n

19

Shaping A Connected and Innovative Economy Boosting Export Potential and Capacity Expansion Responsible Fiscal and Debt Management Building A Framework for Competitiveness Addressing High Cost of Doing Business A Caring and Inclusive Society

SLIDE 21

Socio-Economic Research Centre 20

1) The Malaysian economy continues to stay on positive track (estimated 5.0% in 2017 and 4.9% in 2018 vs. 4.2% in 2016). 2) The growth is broad-based, firing on twin engines: Domestic demand, especially private sector expenditure and strengthening external demand. 3) Monetary policy must be well calibrated to support growth and anchor inflation expectations while mindful of global financial conditions. BNM’s policy rate will remain steady at 3.00% this year. 4) While the ringgit has continued to stabilize, headwinds remain emanating from the potential risks associated with the monetary policy tightening, political development in advanced economies as well as geopolitical tensions. 5) Policy balancing to sustain growth and preserve the resilience of economy.

Con Conclusion lusion

SLIDE 22

Socio-Economic Research Centre

Press Conference on SERC’s Quarterly Economy Tracker Second Quarter of 2017

Q & A

21

SLIDE 23

社会经济研究中心

SOCIO SOCIO-ECONOMIC ECONOMIC RE RESE SEAR ARCH CH CE CENTR NTRE

谢谢

THANK YOU

SERC Sdn. Bhd.

Address : 6th Floor, Wisma Chinese Chamber, 258, Jalan Ampang, 50450 Kuala Lumpur, Malaysia. Tel : 603 - 4260 3116 / 3119 Fax : 603 - 4260 3118 Email : serc@acccimserc.com Website : http://www.acccimserc.com

Q & A

谢 谢

谢谢