社会经济研究中心...社会经济研究中心 SOCIO-ECONOMIC RESEARCH CENTRE QUARTERLY ECONOMY TRACKER (APR-JUN 2020) Getting the Economy Back on Track Executive Director 9 July

社会经济研究中心

SOCIO-ECONOMIC

RESEARCH CENTRE

QUARTERLY ECONOMY TRACKER

(APR-JUN 2020)

Getting the Economy Back on Track

Executive Director

9 July 2020

Lee Heng Guie

1Socio-Economic Research Centre

Outline

Predictions of the World Economy Post

COVID-19 Pandemic

Malaysia’s Post- MCO Recovery Tracker

Rebooting Malaysia – Recovery, Revitalise

and Reform

2

As the global economy emerges from

COVID-19 pandemic, governments

are grappling with policies how to

move forward, how to recover

growth, how much structural

adjustment to make and how long to

maintain the financial support?

Predictions for the Global Economy


Source: IMF (WEO Update, Jun 2020)

4.8

2.53.0

4.3

5.44.9

5.5 5.6

3.0

-0.1

5.4

4.33.5 3.5 3.6 3.5 3.4

3.9 3.62.9

-4.9

5.4

-8.0

-3.0

-10

-8

-6

-4

-2

0

2

4

6

8

10

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020F

2021F

World Advanced Economies Emerging market & Developing Economies

Real GDP Growth (%)

• An uneven and gradual recovery

• Global activity in 1H 2020 has experienced a sharp and synchronized contraction greater

than anticipated

• The question is how effective the policy countermeasures to limit economic damage?

“Extraordinary Uncertain” path to global recovery


Global Growth Scenarios for 2020-2021*

Scenario Projected global

GDP growth in

2020

Projected

global GDP

growth in 2021

Upside • Global growth stabilisation and recovery.

Disruptions from pandemic fade in 2H

• COVID-19 outbreak is contained in 2H

2020. Hopeful vaccine will be found in

2021

• Monetary and fiscal stimulus are working

0.5% 5.0%

Base Case • Global stabilisation and moderate

recovery in 2H 2020

• A prolonged COVID-19 outbreak,

disrupted supply chains, financial

turbulence; geopolitical shocks

• Monetary and fiscal stimulus are working

-3.0% 4.5%

Downside • Deeper global recession

• Deepening impact from a prolonged

COVID-19 outbreak

• Ineffective monetary and fiscal policy

stimulus

• Sharp correction in global equities and

commodities market

-5.0% 2.0%

* SERC’s estimates


2.3

1.0

-0.7

7.0

4.15.0

3.6

6.7

1.01.5

6.0

0.3

-3.1

-1.7

3.73.1 3.0

0.7

-0.2-0.7

-1.8

-6.8

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

US Euro Area Japan Vietnam India Indonesia Malaysia Philippines Singapore Thailand China

2019 Q4 2020 Q1Real GDP growth (%, YoY)

Advanced economies Regional economies

▲ Large and timely policy responses

▼ Severe labour market dislocations

▼ Lockdown has shutteredeconomic activity

▲ Supportive policy stimulus,anchored by projectedrecovery in China

▼ Weaker external and domesticdemand conditions

Source: Officials (unadjusted data except Euro Area); IMF

-8.0[2.3]

-10.2[1.2]

-5.8[0.7]

2020F*[2019]

-[7.0]

-4.5[4.2]

-0.3[5.0]

-3.8[4.3]

-3.6[6.0]

-[0.7]

-7.7[2.4]

+1.0[6.1]

* IMF, World Economic Outlook Update, Jun 2020

Global economic contraction – What has happened so far?


Decoupling of real economy from stock market

KEEP the system

from imploding

KEEP people who’ve lost

jobs from real desperation

STOP companies’ liquidity problems

and sovereignty problems

SOME

CAPACITY

DESTROYED OR

DECREASED

CAPACITYMASSIVE JOB

CUTS AND

INCOME LOSS

DECLINE IN

PRODUCTIVITY

REDUCED

INVESTMENT

CONSUMER

SENTIMENT AND

SPENDING

UNEMPLOYMENT

AND WAGE

GROWTH

Extraordinary interventions by governments and central banks

A V-shaped recovery in stock market but not for global economy

Three indicators to ascertain the strength of recovery

PURCHASING MANAGERS’

INDEX (PMI) FOR

MANUFACTURING & SERVICES


95.7

94

96

98

100

102

Jan2016

Jul Jan2017

Jul Jan2018

Jul Jan2019

Jul Jan2020

OECD US EA19 Japan

Composite Leading Index (CLI)A gauge of economic outlook (Long-term average = 100)

-16.2

-12.1

-20

-15

-10

-5

0

5

10

Jan2016

Jul Jan2017

Jul Jan2018

Jul Jan2019

Jul Jan2020

World Trade Volume World IPI

World Trade and IPI%, YoY

47.8

48.0

20

25

30

35

40

45

50

55

60

Jan2016

Jul Jan2017

Jul Jan2018

Jul Jan2019

Jul Jan2020

Manufacturing Services

Global PMI for manufacturing and services

(50 = no change on prior month)

5.8

-40-30-20-10

01020304050

Jan2016

Jul Jan2017

Jul Jan2018

Jul Jan2019

Jul Jan2020

Worldwide USA China

Global Semiconductor sales

(%, 3-month moving average YoY)

Source: OECD; IHS Markit; SIA

WTO expects world trade to

decline between 12.9% and

31.9% this year

Is there a silver lining

for the semiconductor

industry?

Mfg

Serv

High-frequency data suggest steepest economic slump has

bottomed out


Post-Great Lockdown: Global mobility tracker

60

80

100

120

140

160

180

200

1 Mar 1 Apr 1 May 1 Jun 1 Jul

Flights Tracked

-100

-80

-60

-40

-20

0

20

40


Australia Germany

United Kingdom United States

-100

-80

-60

-40

-20

0

20


Brazil Germany SpainFrance UK ItalyNetherlands US

-100

-80

-60

-40

-20

0

20


Brazil Germany SpainFrance UK ItalyNetherlands US

Source: Flightradar24; OpenTable; Google Mobility

% change vs. same day of

same week one year ago

Number of flights tracked have bottomed out Restaurant bookings

Time spent in workplacesTime spent in retail and recreation

%, 7-day moving average %, 7-day moving average

(‘000, 7-day moving average)


We caution developments that would trigger a reversal in

riskier assets’ prices

A protracted

and deeper

recession than

anticipated.

Stemming from a

second wave of

infections,

compelling more

restricted

movements and

containment

measures

Investors pare

down

expectations

and lower

optimism about

the central banks’

continued

liquidity support

Investors

reassess their

appetite and

pricing of risk

on worse-than-

expected

corporate

earnings. Assets’

repricing could

result in a sharp

tightening in

financial

conditions,

causing stock

market volatility

Renewed trade

tensions

between the US

and China

The US

Presidential

Election

outcome in

November and

potential policies’

ramifications

Geopolitical

tensions could

lead to a reversal

in investors’

sentiment

1 2 3 4 5 6


48.4

79.8

128.3

0

20

40

60

80

100

120

140

160

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Ja

nF

eb

Ma

rA

pr

Ma

yJu

n

Average 2020

Commodity Price Index(2010=100)

Energy Non-energy Precious Metals

Source: World Bank; MPOB

3,014

2,074

2,412

1,000

1,500

2,000

2,500

3,000

3,500

0.0

0.5

1.0

1.5

2.0

2.5

2015

2016

2017

2018

Jan

Feb

Ma

rA

pr

Ma

yJu

nJu

lA

ug

Se

pO

ct

No

vD

ec

Ja

nF

eb

Ma

rA

pr

Ma

yJu

n

Average 2019 2020

CPO Stock (LHS) CPO Price (RHS)

CPO Price(Local delivered, RM/tonne)

CPO Stocks(million tonne)

Brent spot price:

Jan-29 Jun 2020:

US$40.22/bbl

(2019: US$64.36/bbl)

Crude oil prices seem stabilising; Crude palm oil prices on

the mend


-1

0

1

2

3

4

5

6

7

2000 02 04 06 08 10 12 14 16 18

Policy Rate (%)

Fed ECB BOJ

Profoundly low interest rates are here to stay

Note: Interest rate on deposit facility applied as ECB’s policy rate

Source: Fed; ECB; BOJ, Official central banks

2020

Jun

0

1

2

3

4

5

6

7

8

9

10

2008 09 10 11 12 13 14 15 16 17 18 19

Policy Rate (%)

Malaysia India South Korea

Indonesia Thailand Philippines

2020

Jun

If 2008-09 GFC was the “too big to fail” crisis, 2020 is the “too many to fail” version: Central

bankers cannot allow a domino effect of firms collapsing for fear that the economic damage

will be so severe.

12

Aggressive policy responses to limit

economic repercussions

• PRIHATIN & PENJANA: RM295bn or

21.1% of GDP

• Direct fiscal injection: RM45.0bn or

3.2% GDP

The Malaysian Economy


5.0

3.0

3.2

3.4

3.6

3.8

4.0

4.2

4.4

4.6

4.8

5.0

-20

0

20

40

60

80

100

120

140

160

180

Jan2019

Apr Jul Oct Jan2020

Apr

Monthly Changes of Unemployed Persons

Unemployment Rate

Unemployment Rate(%)

Monthly Changes of

Unemployed Persons(‘000)

Jobless rate hit a record 5.0% in April (number

of unemployed persons increased by 261,800 to

778,800 in April 2020 vs. end-2019: 517,000).

Expect unemployment rate to reach 5.5%-6.5%

in 2Q-3Q in 2020.

A vicious cycle of job loss and income

retrenchment

Lockdowns and

production

shutdowns/disruptions

Job and income

losses in affected

sectors

Weaker domestic

demand

Job and income

losses in initially

unaffected sectors

Even weaker

demand

The vicious cycle

Source: BNM; DOSM

COVID-19’s supply shock induced demand shock’s vicious cycle


PROTECTING RAKYAT

PRIHATIN Economic Stimulus Package (ESP) – Status update

Source: LAKSANA Report

SUPPORTING BUSINESS

Bantuan Prihatin

Nasional (BPN)

Benefitted 10.2 millionindividuals & households

Distributed RM10.9 billion

Achievement status: 97.5%

EPF’s i-Lestari

Benefitted 4.3 millionindividuals

Withdrawal up to RM2.2

billion a month

KWSP contribution rate

reduced from 11% to 7%

Benefitted 5.7 million EPF

contributors

Total reduction: RM1.9 billion

1.85 million opt to maintain at 11%

SME Soft Loan Funds

Benefitted 20,104 SMEs Approved loan amounted to

RM8.7 billion

PRIHATIN Special

Grant (GKP)

Benefitted 544,632 micro

enterprises Approved grant amounted to

RM1.6 billion

Grant for small scale

government projects

Allocated RM3.8 billion for

SMEs to kick-start public

projects awarded

STRENGTHENING ECONOMY

As of 5 Jun

As of 19 Jun

As of 26 JunAs of 6 Jul

As of 6 Jul As of 6 Jul

15

Economic and Business impact –

Counting the cost



PRIHATIN’s measurable impact:

PENJANA – Short-term Economic Recovery Plan

76.6% 65.5% 61.4%Salary

payment

No

customers

Rental

payment

Source: PENJANA Short-Term Economic Recovery Plan; DOSM Special Survey on COVID-19 Impact on Business Sector (10 Apr -1 May)

Many businesses still concerned about 3Cs and struggling to cope several challenges:

Saved 2.7

million jobs

Wage Subsidy Programme

Eased more than 10

million individuals’

cash flow burden

Bantuan PRIHATIN Nasional (BPN)

Loans moratorium EPF’s i-Lestari

Supported 800,000

businesses and

micro SMEs

Various financial assistance

Loans moratorium

Cash flow Costs Credit

THREE MAIN ISSUES/CHALLENGES

IMMEDIATE

CHALLENGES

STRUCTURAL

CHALLENGES

Revive demand

Supply disruptions

Cash flow problem

Operating costs

Consumer behaverioul

protocols

Standard Operating

Procedures

Intense competition in online

business and e-commerce

Employment Retention

Programme


Unemployment Job savings program

• Unemployment rate jumped to 5.0% in April

• Expect further rise to 5.5%-6.5% in 2Q-3Q

• EIS data (Jan-4 Jul 2020): 53,952 persons loss

of employment (vs. 40,084 in Jan-Dec 2019)@

• A rebound can’t truly get underway until people

are able to go back to work and jobless rate

recedes from a record high

• 2.7 million jobs saved (2.5m via WSP; 0.2m via

ERP)

• Both the number of employers applied and

employees benefited from WSP and ERP

moderated sharply in May-Jun

• ERP (wage subsidy on no pay leave) may

presage the potential loss of employment

3.3 3.2 3.3

3.9

5.0

Avr

Ja

n

Feb

Ma

r

Ap

r

2019 2020

Malaysia’s post COVID-19 recovery tracker

Source: DOSM; PERKESO

5.84.6 5.3

6.1

10.1

18.6

3.5

Ja

n

Feb

Ma

r

Ap

r

Ma

y

Ju

n

Ju

l

Unemployment Rate%, YoY

Wage Subsidy Program

(WSP)(‘000, applications)

Employment Retention Program

(ERP)(‘000, applications)

0

50

100

150

200

250

300

Mar Apr May ^Jun

Loss of Employment(‘000)

0

500

1,000

1,500

2,000

2,500

Apr May Jun Jul

Employers Employees

2020 2020 2020

^ As of 21 June

*

* As of 4 July

@ Unemployment claims under Employment Insurance System (EIS)

#

# As of 3 July


Consumer sentiment Buying a car

• Consumers’ optimism has suffered a record

plunge

• Until Malaysians feel safer from the virus and

have secured job and income, they won't regain

confidence and spend normally hurdle to a

strong recovery

• While sales tax exemption would spur demand,

car buyers won’t return in droves and make the

biggest purchase unless they have secured job

and income as well as can get a loan

• PENJANA: Exempts sales tax on passenger

cars (100% for locally assembled (CKD) and

50% for imported (CBU)) till end-2020

85.693.0

84.0 82.3

51.1

Q12019

Q22019

Q32019

Q42019

Q12020

Malaysia’s post COVID-19 recovery tracker (cont.)

Source: MIER; BNM

MIER Consumer Sentiment Index (CSI)Optimism Threshold = 100

Passenger Car Sales (Volume)%, YoY

-11.5-0.1

-59.6

-99.7

-63.4

Jan Feb Mar Apr May

2020


Shopping at retailers Production & manufacturing sales

• Footfall in major shopping malls about

between 50%-70%, but sales are up to 40%

vs. pre-MCO

• Amid wary about the virus, social distancing and

SOP are likely to discourage many people away

when stores reopen

• How fast they return is critical for domestic

consumption and spending

• Manufacturing capacity has gradually

restored back to 70%-80% and 90%-100% for

some strong products demand industries (still

low around 30%-50% for wearing apparels)

• Sharp plunge in industrial production and

manufacturing sales will hit the peak in 2Q and

will improve to decline shallowly in the

months ahead


Source: DOSM

0.6

6.2

-4.9

-32.0

2.4

7.6

-3.0

-33.0

Jan Feb Mar Apr

Industrial Production Index (IPI)

Manufacturing Sales

Retail Sales%, YoY

Industrial Production and Manufacturing Sales%, YoY

6.7 6.3

-6.6

-32.4

Jan Feb Mar Apr

20202020


External trade Consumer Price Index (CPI)

• Exports contracted sharply due to lockdown

impact on demand from our major buyers amid

supply chain disruptions

• Our major trading partners’ pace of economic

recovery in 2H 2020 would help to lift export

growth and support the economy

• Deflation inflicted by lower petrol prices and

electricity tariff discounts amid slow price

increases in other main groups. Capacity slack

and oversupply amid slower demand

• As long as there is no a broad-based decline in

prices for a sustained period, says at least more

than a year, it is a lesser concern about deflation

-1.5

11.8

-4.7

-23.9-25.5

-2.4

11.3

-2.7

-8.0

-30.4

Jan Feb Mar Apr May

Exports

Imports


1.61.3

-0.2

-2.9 -2.9

-2.2-2.6

-21.5 -20.8-25

-20

-15

-10

-5

0

5

10

-5

-4

-3

-2

-1

0

1

2

Jan Feb Mar Apr May

Headline Inflation (LHS)

Housing, Water, Electricity, Gas& Other Fuels Inflation (LHS)

Transportation Inflation (RHS)

External Trade%, YoY

Inflation by Selected Components%

20202020

Source: DOSM


Loan financing Daily flying passengers

• Business loan growth (4.5% yoy in May and

4.7% in April) and households’ demand eases

• As of 6 July, total loan moratorium amounted

to RM51.4 billion (RM33.4 billion for individuals

and RM17.9 billion for businesses)

• Real test is the expiry of loan moratorium in

September

• Air passengers traffic has already dropped due

to the pandemic outbreak and lockdown in China

before the starting of domestic MCO and the

Great Lockdown

• Following the inter-state travel and on-going

negotiations to allow cross-border travel using

the “Green Bubble" countries method, the

aviation and travel industry will be gradually on

the mend


Source: BNM; MAHB

4.5 4.4

3.73.3 3.2

2.0

3.2

4.45.1 4.9

Jan Feb Mar Apr May

Household SectorBusiness and Other Sectors

6.6

-23.4

-63.6

-98.4 -97.0Jan Feb Mar Apr May

Domestic International Total

Loan Outstanding%, YoY

Growth%, YoY

20202020


-32.0

-40-35-30-25-20-15-10-505

10

Jan2018

Apr Jul Oct Jan2019

Apr Jul Oct Jan2020

Apr

Overall IPI Manufacturing Mining

Industrial Production Index (IPI)% YoY

-25.5

-30.4-35

-25

-15

-5

5

15

Jan2018

Apr Jul Oct Jan2019

Apr Jul Oct Jan2020

Apr

Exports Imports

Exports and Imports%, YoY

Source: DOSM; IHS Markit

-27.6

-32.4-35-30-25-20-15-10-505

1015

Jan2018

Apr Jul Oct Jan2019

Apr Jul Oct Jan2020

Apr

Wholesale Retail

Wholesale and Retail Trade%, YoY

51.0

30

35

40

45

50

55

-40

-30

-20

-10

0

10

Jan2018

Apr Jul Oct Jan2019

Apr Jul Oct Jan2020

Apr

IPI - Manufacturing PMI - Manufacturing

Manufacturing

Production Index (IPI)% YoY

Purchasing Managers’

Index (PMI)50 = no change on prior month

WS

RT

Exp

Imp

High frequency data show a sharp contraction to peak in 2Q


-2.9

1.1

-3

-2

-1

0

1

2

3

Jan2018

Apr Jul Oct Jan2019

Apr Jul Oct Jan2020

Apr

Headline Inflation Core Inflation

Inflation Rate%

5.0

3.0

3.4

3.8

4.2

4.6

5.0

5.4

5.8

02468

101214161820

Jan2018

Apr Jul Oct Jan2019

Apr Jul Oct Jan2020

Apr Jul

Th

ou

sa

nd

s

LOE Unemployment Rate

Unemployment Rate(%)

Loss of Employment (LOE)(‘000)

-6.3

-10

-5

0

5

10

15

Q12016

Q3 Q12017

Q3 Q12018

Q3 Q12019

Q3 Q12020

Construction – Value of Work Done%, YoY

High frequency data show a sharp contraction to peak in 2Q

(cont.)

2.3

0

2

4

6

8

10

Q12016

Q3 Q12017

Q3 Q12018

Q3 Q12019

Q3 Q12020

Index of Services%, YoY

Source: DOSM; PERKESO

23% in manufacturing;

14% in wholesale and retails

58% (Professionals, managers,

executives and technicians)

*

* As of 4 Jul


Our channel checks on reopening of the economy

Most business

have started

operation

15.0 million (98.8%)

employees returned

to work currently (vs.

10.2 million @ 67.2%

as of 17 May)

Manufacturing plants:

Mostly have resumed

operations (70%-80%

capacity utilization rate)

For electronics and

automation companies

• 40% operating at 100%

• 40% above 80%

• 20% between

50% and 60%

Footfall/foot traffic

about 50%-70%

Major shopping malls:

Sales are up to 40%

compared to pre-MCO


Our channel check on reopening the economy (cont.)

56%-82% of the construction sites have complied with SOP.MAH survey: Occupancy rate is expected to rise

from 15.83% at end-June to 32.10% at end-Dec

2020

Hotels:

Overall occupancy

rate still below 30%

MAH survey: 15% will

close business

permanently and 35% temporarily

Restaurants/coffee shops:

Dined-in was constrained by

decreased seating capacity

(social distancing)

Potential loss of key

sources of income

(functions/events/wedding

dinner) for August

Construction:

During the sites inspection

made between 22 June-1

July, about 9%-29% of

construction sites have not

started operations


Reopening economy: Malaysia’s mobility tracker

Source: Google Mobility

Time spent in transit stationsTime spent in grocery and pharmacy

%, 7-day moving average %, 7-day moving average

-60

-50

-40

-30

-20

-10

0

10


Grocery and Pharmacy

-90-80-70-60-50-40-30-20-10

0


Transit Stations

MCO MCOCMCO CMCO RMCORMCO

-90-80-70-60-50-40-30-20-10

0


Retail and Recreation

-70-60-50-40-30-20-10

010


Workplaces

Time spent in retail and recreation Time spent in workplaces

%, 7-day moving average

MCO CMCO RMCO

%, 7-day moving average

MCO CMCO RMCO

27

Prospects in 2020-2021 – What might the

recovery look like?



• Malaysia must be prepared for a challenging nature and complexity “new normal”

path ahead post the COVID-19 global pandemic.

• Given the following evolving economic and financial developments, downside risks to

economic growth remain in 2020-2021.

GLOBAL RECESSION IN 2020 – HOW DEEP AND DURATION? SLOW

RECOVERY IN 2021-2022

VOLATILITY RISK IN GLOBAL FINANCIAL MARKETS

MODERATING COMMODITY PRICES

SOFTENING CRUDE OIL PRICES

WEAKENING DOMESTIC AND BUSINESS CONDITIONS

VOLATILITY RISK IN STOCK MARKET AND WEAK RINGGIT

LINGERING CONCERNS ABOUT THE US-CHINA’S TRADE TENSION

Malaysia: Be prepared for an uneven & gradual global recovery


Positive Outlook

“Sudden stop” in activity in 2020 will normalise

in 2021 amid some permanent loss in output

Technical base comparison sees a “sharp”

bounce in annual growth comparison in 2021

Services and tourism-related sectors will be

revitalised as tourist arrivals resume gradually

Construction: Supported by on-going public

infrastructure projects and new projects

Exports will rebound as global trade picks up

Risks to outlook

A prolonged drag in global recovery

Longer time for some domestic sectors to repair

damage

Households rebuild savings

Slow recovery in jobs marketSource: DOSM; SERC

Get back on track: Well positioned to recover but risks remain

4.3

-3.0

5.5

-4

-3

-2

-1

0

1

2

3

4

5

6

2019 2020E 2021F

Real GDP Growth%


Set improving expectations in 2H 2020

January – June (1H) 2020 July – December (2H) 2020

Bear the brunt

of MCO

Production capacity during an

initial phase of MCO

Essential sector: 40-50%

Non essential sector: 0%

Exports trashed

Great Lockdown

in major trading

partners

Supply

chain

disruptions

Cautious sentiment

Jobs and

income

losses

Spent only

on basic

necessities

CMCO – RMCO

Allow economic sectors

to restart in stages

since May

PRIHATIN measures

provide a temporary

relief

Positive carry

through effect

from reopening

& PENJANA

Gradual

restoration of

confidence

Consumers

adjusting to

new normal

Easing pace of

retrenchment

Cash Flow

Costs Credit

Businesses

slowly

recouping

revenue loss

Domestic

tourism and

inbound travel

revive

Lagged impact

of interest rate

cuts

Exports pick up

gradually


Source: BNM; DOSM; SERC

The duration and depth of economic recession and recovery

6.1

-1.5

-5.9

-10.2 -11.2

-1.0

4.8

9.1

4Q97 1Q98 2Q98 3Q98 4Q98 1Q99 2Q99 3Q99

1997-1998

Asian Financial Crisis (AFC)

6.96.3

5.9

4.6

6.5

8.2

4Q02 1Q03 2Q03 3Q03 4Q03 1Q04

2003

Severe Acute Respiratory Syndrome (SARS)

5.1

0.3

-5.8-3.7

-1.1

4.5

10.3

3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10

2008-2009

Global Financial Crisis (GFC)

4.4 3.6

0.7

-11.5

-3.4

2.24.0

3Q19 4Q19 1Q20 2Q20E 3Q20E 4Q20E 1Q21E

2020

Coronavirus Disease 2019 (COVID-19)

1998 (-7.4%)

1999 (+6.1%)

2003: (+5.8%)

2004: (+6.8%)

2009 (-1.5%)

2010 (+7.4%)

2020E (-3.0%)

2021F (+5.5%)


4.3

-10.2

2.9

8.7

0.6

6.9 7.1

1.5

-15

-10

-5

0

5

10

15

Private Consumption Growth(%, YoY)

1997-1998

Asian Financial Crisis (AFC)

2008-2009

Global Financial Crisis (GFC)

2020 COVID-19-induced

Global Recession

Source: DOSM; BNM; SERC

1997 2008 2005-2017

(Average)

2020201020091999

1998

Currency Crisis inducedMassive income and wealth destruction

(bust in stock and property markets)

US Subprime Crisis induced Global Financial Crisis

Health Pandemic inflicted Global Recession

Unemployment rate Retrenchment Unemployment rate Retrenchment Unemployment rate Retrenchment

2.9% 4.5% 3.0% 4.0% 3.3%5.5%-

6.5%

Mar 1998 Mar 1999 Dec 2007 Mar 2009 Dec 2019 Est. 20201997 1998 2008 2009 As of 4 Jul

18,863

83,865

16,46925,064

53.952(EIS data)

BNM intervention

rate reduced from as at

end-Feb 1998

as at

end-Aug 1999

toOPR reduced

from as at

end-Mar 2019

as of

Jul 2020

toOPR reduced

from as at

end-Oct 2008

as at

end-Feb 2009

to

3-pt reduction in employees’

EPF contribution rate

Cash

handout

4-pt reduction in employees’

EPF contribution rate

Cash

handout

EPF withdrawal

Loans moratorium

Permanent demand destruction vs. spending shifts vs.

spending declines


79.8

66.0

175

.1

124

.2

125

.5

75.0

31.5

38.8 6

4.6 80.1

82.4

44.0

0

50

100

150

200

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E

RM bnDomestic Direct Investment (DDI) Foreign Direct Investment (FDI)

18.4

9.5

21.4

12.811.1

6.34.5

9.0

4.31.5

-11.4

12.3 12.814.7 15.9 16.6 16.8 16.8 17.4 17.3 16.8 15.4

-15

-10

-5

0

5

10

15

20

25

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E

Private Investment Growth

Private Investment (shareof GDP)

%

Note: Figure in parenthesis indicates changes of investment amount on year-on-year basis.

Source: DOSM; MIDA; SERC

Private investment has been trending down in recent years


Source: DOSM; BNM; SERC

1.2

18.8

7.3

-1.7-11.2

-16

-12

-8

-4

0

4

8

12

16

20

24

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E(SERC)

%

Exports shrank by 9.7% yoy in Jan-May 2020 and

are expected to decline further by 11.2% in 2020

Exports performance of key products

in Jan-May 2020

Current account surplus is expected to narrow

further to 1.0%-2.0% of GDP in 2020

Major export products RM billion % Growth

E&E products [36.5%] 133.8 -13.0

Petroleum product [7.8%] 28.7 -1.4

Chemical and related products [5.7%] 20.9 -12.0

Palm oil & palm-based products [4.9%] 17.9 -1.0

LNG [4.3%] 15.6 -16.6

Optical & scientific equipment [3.9%] 14.4 -4.7

Machinery, equipment and parts [3.9%] 14.3 -16.5

Manufactures of metal [3.6%] 13.2 -23.1

Crude petroleum [2.2%] 8.2 -26.4

83.194.3 101.5

114.7

-53.2 -56.0-70.9 -64.9

2.4% 2.8% 2.1%3.3%

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

-90

-60

-30

0

30

60

90

120

150

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F

Current Account Balance Goods & Services Balance Primary & Secondary Income Balance CA/GDP Ratio (RHS)

RM billion

1.0%-

2.0%

Figure in parenthesis indicates % share of gross exports in Jan-May 2020

Import compression helps to keep current account surplus


4.5

-9.3

-25.4

-30.6

-33.0

-50

-40

-30

-20

-10

0

10

20

30

Jan Feb Mar Apr May

China US Europe ASEAN Japan

YoY %

Source: DOSM

Only China offers the bright spot for now

2020

Malaysia’s exports growth to major markets


Is there a risk of sustained deflation?

1.75

-2.9-3

-2

-1

0

1

2

3

4

5

6

Jan2016

Jul Jan2017

Jul Jan2018

Jul Jan2019

Jul Jan2020

Jul

%

OPR Inflation Rate

Lower oil prices-induced deflation in 2020 Ringgit outlook: RM4.30 per US dollar at end-

2020

Source: DOSM; BNM

* OPR as at end-period

-6.1%

-18.6%

-4.3%

10.4%

-1.8%

1.1%

-4.4%

3.4950

4.2920

4.4860

4.0620

4.1385

4.0925

4.2800

2014 2015 2016 2017 2018 2019 30 Jun2020

Change from previous end-year's rate RM/US$

Year 2016 2017 2018 2019 2020E^

OPR (%)* 3.00 3.00 3.25 3.00 1.75

Inflation

Rate (%)2.1 3.7 1.0 0.7

-0.5 to

-1.0

Note: Exchange rate (12:00 rate) as at end-period

• Prices have slipped into deflation territory (-2.9% yoy in Apr-May and -0.2% in March) and

average -0.7% in Jan-May 2020. Transport prices were the distortionary factor due to the tumbling

petrol prices.

• 27.3% of goods in the CPI basket saw decreases in prices in Jan-May 2020.

^ denotes SERC’s estimates

(May)


Revenue enhancement

Additional non tax revenue,

including higher dividend

contributions from the

GLCs and CLICs such as

PETRONAS, KHAZANAH,

Bank Negara Malaysia, etc.

Reintroduction of Goods

and Services Tax (GST)?

Privatisation of some

government-owned assets

Expenditure rationalisation

More targeted subsidy;

savings from fuel subsidy

Reprioritisation and

reallocation of expenditure

Shortfall in government

spending due to MCO

-6.7

-5.3

-4.7

-2.9

-3.7-3.4

-8

-7

-6

-5

-4

-3

-2

-1

0

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020E

Fiscal Deficit% to GDP

-5.8 to

-6.0

Fiscal deficit is expected to

widen to 5.8% to 6.0% of GDP

in 2020

Review statutory debt limit;

self-imposed administrative

55% of GDP ceiling?

Sovereign ratings

S&P: A- (Negative)

Moody’s: A3 (Stable)

Fitch: A- (Negative)

Source: BNM; MOF; S&P; Moody’s; Fitch

Fiscal deficit may not matter much in an economic recession

362

793

824

50.8

49.6

53.6

50.0

52.5

58.8

48

50

52

54

56

58

60

300

400

500

600

700

800

900

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

1Q

202

0

FG Debt (LHS) FG Debt / GDP (RHS)

Federal Government Debt

RM billion % to GDP


Rating agencies downgrade Malaysia’ sovereign ratings

Last revision: 26 June 2020

Rating:

A- (maintained)

Outlook:

Negative (from Positive)

Last revision: 1 June 2020

Rating:

A3 (maintained)

Outlook:

Stable (maintained)

Last revision: 9 April 2020

Rating:

A- (maintained)

Outlook:

Negative (from Positive)

Comments:

• Downside risks to fiscal metrics – weak global

economic climate and heightened policy uncertainty

• Covid-19, depressed oil prices and fiscal stimulus –

weaken government’s debt position over next

few years

Comments:

• Malaysia balances its diverse economy with robust

growth potential and large domestic savings against

the government's narrow revenue base and high

debt burden

Comments:

• High uncertainty about economic deterioration

and public finances

• Recent political volatility may affect governance

standards, which had been improving in the past

two years


• Federal Government debt stood at RM823.8 billion (estimated 58.8% of GDP) as at end-Mar 2020, has

exceeded self-imposed administrative limit of 55% of GDP.

• It is required to seek Parliament’s approval to relax these binding fiscal limits.

No compromise on fiscal discipline and governance

Source: MOF

Debt-to-GDP ratio should not

be a cause for alarm for now

60.1%-93.1% in 1982-1991

60% is considered as a

prudential limit

Balance between higher debt

binding limit and erosion of

fiscal credibility

Committed to lower fiscal deficit to 4% of

GDP in 3-4 years

Find the right path between budget deficit (or

fiscal stimulus) and sustainable debt level

during the good times and stable years

Macro-economic and political stability

Debt service charges (DSC)

have been growing rapidly by

8.6% pa from RM15.6 billion in

2010 to RM32.9 billion in 2019,

made up 12.5% of total revenue /

operating expenditure.

However, the growing

mountain of debt should

be viewed seriouslyResume fiscal consolidation when the economy recovers

40

Political stability is key to

macroeconomic stability and growth

Good sense and strong political will

must prevail to reset our national

development agenda

Rebooting Malaysia


Malaysia has adopted six approaches or 6Rs (RESOLVE, RESILIENCE,

RESTART, RECOVERY, REVITALISE AND REFORM) to balance between the

COVID-19 containment and people livelihood as well as the economy.

What to watch in 2020-2021?

Aug 2020 (tentative) – Economic Recovery Plan

Sep 2020 (tentative) – 4th Malaysia Industrial Master Plan (2021-2030)

6 Nov 2020 – 2021 National Budget

Jan 2021 – 12th Malaysia Plan (2021-2025)

We Are Here

RESTARTRESILIENCE RECOVERYRESOLVE REVITALISE REFORM

Malaysia’s six-pronged strategy to address COVID-19 impact


• Broader stimulus. RM295.0 billion or 21.1% of GDP fiscal, monetary and micro-financial

measures to blunt the amplification of economic damages on households and businesses

(targeted) in the immediate-and short-term.

• In the immediate-term, there is pressure to reduce unemployment, revive consumer

spending and stimulate economic growth. Address investors’ lingering concerns about

domestic political environment and future policy direction. The immediate priorities are to:

1. RESTORE CONFIDENCE ON ECONOMY AND POLITICAL STABILITY

2. SWIFTLY IMPLEMENT TARGETED FISCAL SPENDING

3. EASE COST OF DOING BUSINESS

4. HOLISTIC MANAGEMENT OF FOREIGN WORKERS

5. SUSTAIN PRIVATE CONSUMPTION; EASE UNEMPLOYMENT

6. REVITALISE PRIVATE INVESTMENT (DDI and FDI)

7. DIGITALISATION AND AUTOMATION

8. RESKILLING AND UPSKILLING WORKFORCE

9. UPLIFT EXPORTS CAPACITY

10. REJUVENATE CONSTRUCTION AND SLUGGISH PROPERTY SECTOR

10-pin policy priorities in the immediate- and short-term


Rebooting Malaysia: Recovery, Revitalise and Reform

The Government must continue

to implement:

Malaysia’s institutional quality must

be strengthened further with

Credible economic

policies

Institutional and political

reforms

Including fiscal discipline, political

stability and institutional quality

A wider

implementation of

open and

competitive

tender

Fiscal

transparency

Strengthen

goverance

To promote accountability and fiscal responsibility

Malaysia’s Economic Recovery Plan (ERP) in the medium- and long-term will constitute

FIVE key pillars as follows:

FISCAL STABILITY AND GROWTH STABILISATION PACT

UNLOCKING NEW SOURCES OF GROWTH

REINFORCE COMPETITIVENESS AND PRODUCTIVITY NEXUS

SMART AND DIGITAL TECHNOLOGY-DRIVEN INVESTMENT

UPSKILLING WORKFORCE AND EDUCATION FOR THE FUTURE


Rebooting Malaysia: Recovery, Revitalise and Reform (cont.)

Corporate Tax Rate

from current’s

Review and upgrade:

Domestic Investment

Strategic Fund (DISF)

Industry4WRD

Intervention Fund

Reinvestment Allowance

Accelerated Capital Allowance

Investment Tax Allowance

Automation Capital Allowance

Ordinary

24%

SME

17%*

2%

* For first RM500,000 chargeable income

FDI (40%) = DDI (60%)

Equal emphasis

Ease cost of

doing

business

Enhance business

friendly and competitive

place of doing business

and investing

DDI = Domestic Direct Investment

:

Avoid policy flip-flops as it hurts

businesses and worrying investors.

RM207.9bn

approved in

2019

Policy continuity and meaningful

reforms should take priority to shore up

confidence and economic sustainability.

Restore consumer and investor

confidence on the economy and political

stability.

Macro and political stability are essential

to ensure a sustained economic revival.


Rebooting Malaysia: Recovery, Revitalise and Reform (cont.)

Investing in “new smart infrastructure”

used for high-tech, digitalisation and

sustainable purposes (renewable energy,

climate change, eco-green)

Big data centres 5G infrastructure

Charging stations for new

energy vehicles (NEVs)

Solar energy Healthcare

Medical devices

Defense

technology

Aerospace

For example:

Digitalisation and e-Commerce

RM21.0 billion National

Fiberisation and Connectivity

Plan (NFCP) (2019-2023)

Industry4WRD Plan (2018-2025)

Malaysia’s Digitalisation Plan

Malaysia’s National e-commerce

Strategic Roadmap

Smart agriculture – Food – Halal industry

Rubber products, palm oil

and oil palm products and

wood-based products

社会经济研究中心

SOCIO-ECONOMIC

RESEARCH CENTRE

谢谢THANK YOU

Address : 6th Floor, Wisma Chinese Chamber,258, Jalan Ampang, 50450 Kuala Lumpur, Malaysia.

Tel : 603 - 4260 3116 / 3119

Fax : 603 - 4260 3118

Email : [email protected]

Website : http://www.acccimserc.com

Documents

社会经济研究中心...社会经济研究中心 SOCIO-ECONOMIC RESEARCH CENTRE QUARTERLY ECONOMY TRACKER (APR-JUN 2020) Getting the Economy Back on Track Executive Director 9 July