SOCIO SOCIO-ECONOMIC ECONOMIC RES RESEAR EARCH CH CENT - PowerPoint PPT Presentation

社会经济研究中心 SOCIO SOCIO-ECONOMIC ECONOMIC RES RESEAR EARCH CH CENT CENTRE RE Quar Quarter terly Eco Econo nomy my Trac acker er (J (Jan an-Mar Mar 2017 2017) How’s the economy doing? 4 Apr pril il 2017 2017

Ag Agenda  Global economic activity picks up pace  Malaysia economy – how resilient?  What will derail the growth track? Here’s are the five key risks facing Malaysia   Conclusion Socio-Economic Research Centre 1

Key me messa ssages Global growth is picking up, but risks remain • Global growth supported by expected fiscal initiatives (Trumponomics) • Confidence rising but consumption and investment still subpar • Policy reforms to raise the growth potential; declining productivity growth Policy risks and financial vulnerabilities could temper the momentum • Hopes fading if outcomes fall short of expectations • Potential disruptions --- trade protectionism, Brexit’s negotiation & political risks • Continued volatility induced by interest rates and exchange rate movements • Unsustainable asset prices, credit growth and debt 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 and productivity • Address as well as contain vulnerabilities to build economic resilience Socio-Economic Research Centre 2

The glob lobal economy my is is on on a cruising ising sp speed … • Global growth will pick up pace (3.4% in 2017 and 3.6% in 2018) against estimated 3.1% in 2016. But, the growth estimate remains below 4.2% pa in 1998-2007 • The US economy is gaining traction (2.3% in 2017 vs. 1.6% in 2016); a modest recovery in Eurozone and Japan • China’s growth reassuring (6.5% in 2017 vs. 6.7% in 2016) amid growing worries about high debt risk Socio-Economic Research Centre 3

Global ind Glob indica icato tors point int to to bette tter growth wth ahead ahead • The year is off to a good start, buoyed by increasing optimism about global growth • Markets are more focused on the prospects of the Trump’s reflationary policies and less on the risk of trade wars or other undesirable political outcomes • OECD Composite leading indicators and PMIs suggest an upswing in global economic growth OECD Composite leading Global PMI for manufacturing Consumer and business indicators suggest gaining and services on uptrend confidence rises traction 102 60 102 101 101 55 100 100 99 99 50 98 98 97 45 97 2010 Jan Jul 2011 Jan Jul 2012 Jan Jul 2013 Jan Jul 2014 Jan Jul 2015 Jan Jul 2016 Jan Jul 2017 Jan 2010 Jan Jul 2011 Jan Jul 2012 Jan Jul 2013 Jan Jul 2014 Jan Jul 2015 Jan Jul 2016 Jan Jul 2017 Jan 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 Global Manufacturing PMI OECD-CCI OECD-BCI Euro Area CLI Japan CLI Global Services PMI Source: OECD; Markit Socio-Economic Research Centre 4

Here’s are how the the US, US, Eur Euro Ar Area and and Japan doing ing • US : a delicate policy adjustment is needed to temper an inflation run-up • Euro area : gaining ground but risks remain • Japan : exports drive moderate economic recovery US: Jobs hiring continues; Euro Area: Moderate recovery Japan: An exports-led recovery inflation rises (‘000) 66 4% 25% 800 4.0% 20% 62 3% 700 3.5% 15% 600 3.0% 58 2% 10% 500 2.5% 5% 400 2.0% 54 1% 0% 300 1.5% 50 0% -5% 200 1.0% -10% 100 0.5% 46 -1% -15% 0 0.0% -100 -0.5% -20% 42 -2% 2011 Jan Jul 2012 Jan Jul 2013 Jan Jul 2014 Jan Jul 2015 Jan Jul 2016 Jan Jul 2017 Jan 2011 Jan Jul 2012 Jan Jul 2013 Jan Jul 2014 Jan Jul 2015 Jan Jul 2016 Jan Jul 2017 Jan 2011 Jan Jul 2012 Jan Jul 2013 Jan Jul 2014 Jan Jul 2015 Jan Jul 2016 Jan Jul 2017 Jan Nonfarm Employment (mom net change) (LHS) Eurozone Manufacturing PMI (LHS) Exports (yoy) Eurozone Services PMI (LHS) CPI (urban consumers) (yoy) (RHS) Industrial Production (yoy) Eurozone Inflation (yoy) (RHS) Source: US BLS; Markit; Eurostat; METI, Japan; MOF, Japan Socio-Economic Research Centre 5

Here’s are how China China, In India ia and and ASEAN ASEAN-4 doing ing • China : Continues its new normal growth trajectory; lingering debt risk • India : Still looking good despite demonetisation shock • ASEAN-4 (Indonesia, Philippines, Singapore and Thailand): Exports recovery taking shape China: Sustained economic India: Industrial output rises ASEAN-4: Synchronized exports activities upturn 25% 12% 60% 50% 10% 20% 40% 8% 30% 6% 15% 20% 4% 10% 2% 10% 0% 0% -10% -2% 5% -20% -4% -30% 0% -6% -40% 2011 Jan Jul 2012 Jan Jul 2013 Jan Jul 2014 Jan Jul 2015 Jan Jul 2016 Jan Jul 2017 Jan 2011 Jan Jul 2012 Jan Jul 2013 Jan Jul 2014 Jan Jul 2015 Jan Jul 2016 Jan Jul 2017 Jan 2011 Jan Jul 2012 Jan Jul 2013 Jan Jul 2014 Jan Jul 2015 Jan Jul 2016 Jan Jul 2017 Jan Retail Sales (yoy) Singapore (yoy) Indonesia (yoy) Industrial Production (yoy) Industrial Production (yoy) Thailand (yoy) Philippines (yoy) Source: NBS, China; MOSPI, India; DOS, Malaysia; DOS, Singapore; Statistics Indonesia; BOT; PSA Socio-Economic Research Centre 6

The era of of glob lobal cheap mo money is is coming ming to to an an end end • The Fed is clearly at the vanguard and setting a vital lead for others to follow suit fairly soon • Deflation risks are dead and buried, headline inflation is on the rise and is gradually building momentum • The ECB is ready to tweak interest rate once French and German elections are out of the way and its quantitative easing program expires in October The Fed’s rate hike cycle Rising inflation Bond yields on fire as market continues; Is BoJ and ECB anticipates more inflation ready to act? % % 1.2 5% 4.0 3.5 1.0 4% 3.0 0.8 3% 2.5 0.6 2% 2.0 0.4 1.5 1% 0.2 1.0 0% 0.5 0.0 -1% 0.0 -0.2 -2% -0.5 -0.4 2011 Jan Jul 2012 Jan Jul 2013 Jan Jul 2014 Jan Jul 2015 Jan Jul 2016 Jan Jul 2017 Jan 2011 Jan Jul 2012 Jan Jul 2013 Jan Jul 2014 Jan Jul 2015 Jan Jul 2016 Jan Jul 2017 Jan -0.6 2011 2012 2013 2014 2015 2016 Feb/Mar 2017 United States (yoy) US 10-Yr Treasury Yield Curve Rates Federal Funds Rate ECB's Desposit Facility Japan (yoy) Japan 10-Yr Govt Bond Interest Rates BoJ Policy Rate Euro Area (yoy) Germany 10-Yr Govt Bond Interest Rate Source: Federal Reserve; ECB; BoJ; U.S. BLS; Eurostat; Statistics Bureau, Japan; U.S. Department of the Treasury; MOF, Japan Socio-Economic Research Centre 7

Risks and Risks and fina financial ial vu vulne lnerabil ilities ities in in persp spectiv tives • Disconnects between financial markets vs. real economy Fading • Fading hopes on the delivery of promised policy reforms • Trade protectionist mindset Disruptions • Unresolved issues related to Brexit’s negotiation • A plethora of policy and political uncertainties • Faster pace of the Fed’s rate hikes • Strong US dollar-induced exchange rate volatility Volatility • Financial distress on high foreign borrowing and currency mismatch • Unsustainable asset prices, excessive credit growth Unsustainable • Bloated debt in some emerging economies Socio-Economic Research Centre 8

Here’s how th the Malaysia Malaysia economy my is is doing ing  Cautiously Key indicators 2015 2016 2017 f 2017 f optimistic outlook. Bank (BNM) (SERC) Negara Malaysia (BNM) expects this year’s GDP growth to grow by 4.3-4.8% Real GDP growth (%)^ 5.0 4.2 4.3-4.8 4.3 (4.2% in 2016), in line with the Ministry of Finance’s forecast made in October Private consumption 6.0 6.1 6.0 5.7 growth (%)^ (SERC: 4.3% in 2017). Private investment  Still decent domestic demand. 6.4 4.4 4.1 4.5 growth (%)^ Consumer spending (54.0% of GDP) will Income per capita (RM) 36,078 37,738 39,656 39,858 grow by 5.7% in 2017 (6.1% in 2016) while private investment growth paces 3.1 3.5 3.6-3.8 3.6 Unemployment (%) slower (4.5% in 2017 vs. 4.4% in 2016). Inflation (%) 2.1 2.1 3.0-4.0 3.0-4.0  Exports recovering. Exports are Export Growth (%) 1.6 1.1 5.5 5.0 estimated to grow by 5.0% in 2017 (1.1% Current account surplus in 2016), riding on higher demand for RM billion 34.7 25.2 17.4 18.4 % of GDP 3.0 1.3 1.3 1.4 electronics and electrical products, improved crude oil and commodity Budget deficit RM billion 37.2 38.4 40.3 39.3 prices. % of GDP 3.2 3.1 3.0 3.0  Higher inflation trajectory . Headline Federal government debt inflation is projected to rise by 3.0-4.0% RM billion 630.5 648.5 - - in 2017 (2.1% in 2016), induced by the % of GDP 54.5 52.7 - - pass-through impact of the increase in Source: Bank Negara Malaysia; SERC global oil prices on domestic retail fuel ^ Constant 2010 prices prices. Weak ringgit also plays a part. Socio-Economic Research Centre 9