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社会经济研究中心
SOCIO-ECONOMIC
RESEARCH CENTRE
The 20th Malaysia Strategic Outlook Conference
Seeking Sustainable Growth: Short –and Long-
term challenges
Lee Heng Guie
Executive Director, SERC
25 January 2018
Socio-Economic Research Centre 1
Agenda
GLOBAL ECONOMY TO CONTINUE MOMENTUM
GLOBAL ECONOMIC RISKS TO WATCH
MALAYSIA: WHAT TO EXPECT IN 2018?
HOW RESILIENCE IS MALAYSIA TO SHOCKS?
MEDIUM- AND LONG-TERM POLICY CHALLENGES
Socio-Economic Research Centre
• How SUSTAINABLE is the current global economic upswing?
• What are key CHALLENGES to boost potential output while
building resilience against downside risks?
• Will there be a SYNCHRONISED TIGHTENING in global
monetary policy in 2018?
• Can Malaysia stay RESILIENT in challenging times?
• Step up POLICY REFORMS to address and contain
VULNERABILITIES to build economic resilience
2
PROBING questions
Socio-Economic Research Centre 3
Global ECONOMIC UPSWING, is the recovery COMPLETE?
Source: IMF (WEO Update, January 2018)
3.2
3.73.9
2016 2017e 2018f
World
1.5
2.32.7
2016 2017e 2018f
United States
1.8
2.42.2
2016 2017e 2018f
Euro Area
6.76.8
6.6
2016 2017e 2018f
China
4.9
5.3 5.3
2016 2017e 2018f
ASEAN-5
1.7
2.3 2.3
2016 2017e 2018f
Advanced Economies
Figure denotes real GDP growth (%)
4.4
4.74.9
2016 2017e 2018f
Emerging Market and
Developing Economies
ASEAN-5: Malaysia, Indonesia,
Philippines, Thailand, Vietnam
0.9
1.8
1.2
2016 2017e 2018f
Japan
Socio-Economic Research Centre 4
Mapping global prospects, CHALLENGES and RISKS
Global economy on upswing, but risks remain
• Recovery is INCOMPLETE; some still weak
• Short-term growth supported by improved confidence and pent-up demand
• Potential for much faster growth - WEAK PRODUCTIVITY; AGING POPULATION
• Improve GOVERNANCE and the INVESTMENT CLIMATE
Policy risks
• Hopes fading if policy outcomes fall short of market expectations
• POTENTIAL DISRUPTIONS: inward-looking policies, Brexit’s negotiation & geo-politics
• Volatility induced by faster than expected monetary tightening & balance sheet reduction
• Monetary policy – From DIVERGENCE TO CONVERGENCE?
Contain financial vulnerabilities
• Stretched market and asset valuations; increasing LEVERAGE (Global debt to GDP:
318% at 3Q17)
• UNSUSTAINABLE asset prices, credit growth and debt implosion
• Chinese to rein in CREDIT EXPANSION AND CONTROL DEBT (2017: 257% of GDP)
Socio-Economic Research Centre 5
Malaysian economy: What to EXPECT in 2018? UPSIDE RISK!
Source: MOF (Economic Report 2017-18); EIA; MPOB; SERC
6.0
7.0
6.5
2016 2017E 2018F
Private consumption growth(%)
4.3
9.0 8.3
2016 2017E 2018F
Private investment growth(%)
2.1
3.73.0-3.5
2016 2017E 2018F
Inflation rate(%)
4.2
5.8-6.0
5.1
2016 2017E 2018F
GDP growth(%)
2,653
2,783
2,750-2,850
2016 2017 2018F
Crude palm oil price(RM/tonne)
44
54
60-65
2016 2017 2018F
Brent crude oil price(US$/barrel)
1.2
19.8
7.5
2016 2017E 2018F
Export growth(%)
Socio-Economic Research Centre 6
Sectoral outlook: Positive, BROAD-BASED EXPANSION
2018F: 5.6% (2017E: 6.1%)% share of GDP: 54.5
• Sustained domestic spending, higher
tourist arrivals, logistic services and
financial services
• Higher growth in wholesale and retail
trade, F&B, information and
communication, transport and storage
as well as finance and insurance
subsectors
Services
2018F: 8.0% (2017E: 7.2%)% share of GDP: 4.6
• On-going civil engineering
infrastructure projects such ECRL,
MRT SSP line, Electrified Double
Track Gemas-Johore Bahru, SPE,
Pan Borneo Highway and Bokor
Central Processing Platform
• Slow growth in commercial and
office space development due to
property overhang
Construction
2018F: 5.5% (2017E: 6.3%)% share of GDP: 23.0
• Export-oriented industries: sustained
demand for electronics and electrical
products, refined petroleum and
wood products
• Domestic-market oriented:
construction-related building
materials, food products and
transport equipment
Manufacturing
2018F: 1.5% (2017E: 1.7%)% share of GDP: 8.4
• Higher natural gas output
• Malaysia agrees to extend oil output
cuts until end-2018
• Brent price to average US$60-65 per
barrel in 2018 vs 2018 Budget’s
US$52
Mining
2018F: 3.8% (2017E: 5.5%)% share of GDP: 8.1
• Slower rise in CPO production and
rubber output
• Livestock, fruits and vegetables
Agriculture
Socio-Economic Research Centre
3.0580
3.2755(-6.6%)
3.4965(-6.3%)
4.2935(-18.6%) 4.4860
(-4.3%)
4.0475(+10.8%)
3.9330(+2.9%)
End-2012
End-2013
End-2014
End-2015
End-2016
End-2017
22 Jan2018
• POSITIVE FUNDAMENTALS: Brightening economic growth prospects, firming commodity
prices, the onshore ringgit stabilization measures, prospect of domestic interest rate
normalization, continued current account surplus, accumulation of foreign reserves.
• COUNTERACT DAMPENING FACTORS: Strong US dollar, higher US interest rates and
yields, flows into the US dollar assets, geopolitical risks and developments in global
financial markets.
• End-2018F: RM3.80-3.90/US$1
7
The ringgit does not reflect its FUNDAMENTAL value
-31.8%
-14.5%
-10.3%
-7.2%
-19.3%
-20.2%
-17.5%
-4.8%
-22.9%
-24.0%
14.1%
-2.0%
0.8%
7.9%
4.1%
1.5%
17.0%
12.9%
1.5%
5.1%
USD
EUR
GBP
JPY
SGD
THB
PHP
IDR
KRW
CNY
Ringgit movement against USD Ringgit performance
Source: Bank Negara Malaysia
2017 – 22 Jan 2018
2013 – 2016
-31.8%
+14.1%
Socio-Economic Research Centre 8
Macroeconomic FUNDAMENTALS supportive of growth
54.5
23.0
8.4 8.14.6
Se
rvic
es
Ma
nu
factu
rin
g
Min
ing
Ag
ricu
ltu
re
Con
str
uction
Malaysia GDP by Economic Sectors
% share of GDP in 2017E
DIVERSIFIED sources of growth DIVERSIFIED export markets
and products
STABLE labour market
conditions
37
46
17
2017(Jan-Nov)
Product% share of
exports
Commodities
Non E&E
E&E
14
10 9 98 8
5
4
SG US JP NL HK CN UK DE
Gross FDI Inflows by Source Country (Jan-Sep 2017)
% share of total gross FDI inflows
CONDUCIVE investment
destination for foreign investors
Source: MOF; DOS, Malaysia; BNM (MHS Nov 2017; AR2016)
29
29
12
10
19
2017(Jan-Nov)
Market% share of
exports
ROW
NIE
PR China
ASEAN
G3
CURRENT ACCOUNT BALANCE
reflects strong investment
10.411.2
5.4
3.64.5
3.12.4 2.8
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7(J
an
-Se
p)
Current Account Balance% of GNI
14.3
14.6
2016 2017(Nov)
Employment(million)
4.3
10.0
2016 2017(Jan-Sep)
Wage Growth(% yoy)
55.5
96.1
11.8%17.0%
(Nov 2017)
-8%
2%
12%
22%
0
50
100
150
1998 2017
% of Nominal GDP
Size of Bond Market and Banking Capital Ratio
Size of Bond Market Capital Ratio
DEEPER markets and strong
financial buffers
Notes: Numbers may not add up due to rounding and exclusion of import duties.
Socio-Economic Research Centre 9
Malaysia’s SUSTAINABILITY heatmap
SHRINKING current account surplus
RISING short-term external debt
HIGHER external debt (reclassification &
exchange rate revaluation)
RESERVES ADEQUACY (7.2 months of retained
imports; 1.1 times short-term external debt)
Source: BNM; CIMB Research
-5.9%
17.1%
2.8%
1997 2008 2017 (Jan-Sep)
Current account balance% of GDP
60.6%
30.7%
65.0%
1997 2008 2017 (end-Sep)
External debt% of GDP
25.3%
33.8%
44.0%
1997 2008 2017 (end-Sep)
Short-term external debt% of total external debt
28.7
91.5102.4
2000 2008 2017
International reservesend-period, US$ billion
Socio-Economic Research Centre 10
Malaysia’s SUSTAINABILITY heatmap
FISCAL CONSOLIDATION remains on track
HIGH DOMESTIC CREDIT vulnerable to
economic shock
GOVERNMENT DEBT is contained below the
self-imposed target of 55% of GDP
HOUSEHOLD DEBT remains high amid
moderate household credit
Source: BNM; CIMB Research
6.2%
-5.4%
-3.0%
1997 2008 2017e
Budget balance% of GDP
31.9%
39.8%
51.1%
1997 2008 2017 (end-Sep)
Government debt% of GDP
163.4%
110.8% 116.5%
1997 2008 2017 (end-Nov)
Domestic credit% of GDP
60.4%
84.6%
2008 2017 (end-Sep)
Household debt% of GDP
Socio-Economic Research Centre 11
Four SHIFTING TRENDS casting a CHALLENGING
FUTURE for Malaysia
Socio-Economic Research Centre
• Global competition to cut CORPORATE TAX heats up
• Malaysia’s PRODUCTIVITY growth is lagging behind
• Strategies and initiatives
Push for a COMPETITIVE TAX STRUCTURE
Restructure and improve the management of FOREIGN WORKERS
Actively encourage the adoption of 4TH INDUSTRY REVOLUTION
Create dedicated pool of investment funds or align existing fund to drive 4th Industry
Revolution agenda nationally
12
#1 Driving COMPETITIVENESS and productivity
21.6
0.7
%
-0.5
% 1.1
%
0.0
% 1.3
%
3.4
%
6.6
%
3.0
% 4.4
%
4.6
%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
0
20
40
60
80
100
120
140
160
US
Au
str
alia
Sin
ga
pore
Jap
an
Ko
rea
Ma
laysia
Chin
a
Th
aila
nd
Ph
ilipp
ines
Indo
nesia
USD (‘000)
Th
ou
sa
nd
s
Productivity Level (LHS) Growth (RHS)
Higher FW remittances
17
30
2.06
2.14 (2015)
0
1
2
0
5
10
15
20
25
30
35
2008 2016
million person
RM billion
Outward Workers’ Remittances (LHS)
Number of FW (RHS)
Source: EY; MPC; BNM; EPU
30
25 25 24 24
20 20 2018.5
17
Ph
ilipp
ines
Indo
nesia
Mya
nm
ar
Ma
laysia
Lao
s
Vie
tna
m
Th
aila
nd
Cam
bo
dia
Bru
ne
i
Sin
ga
pore
Regional corporate tax rate
comparison
Regional labour productivity
comparison in 2015
Socio-Economic Research Centre
• TRANSPORT – seamless connectivity, safety, reliability and speed
• CONNECTIVITY/COMMUNICATION – investment in ICT to scale benefits of digitalization,
broadband speed and reliability of coverage
• SPACE/HOUSING – sharing of economy
• MANUFACTURING FOR THE FUTURE
• CONSUMER CULTURE (taste, fashion and lifestyle)
13
#2 DIGITAL TECHNOLOGIES and transformation
Moderately usage of ICT Malaysia National E-Commerce Strategic
Roadmap to double the e-commerce growth
Source: National E-Commerce Strategic Roadmap; SERC
2.90
2.82
2.90
3.00
3.23
2.48
All SMEs
Construction & PropertyDevelopment
Trading (Imp & Exp)
Wholesale & Retail
Manufacturing
Professional services
Average Current Level of ICT Use(1=Highly advanced 2=High 3=Moderate 4=Low 5=None) 2015 2020
business as
usual
2020with
intervention
e-Commerce
contribution(RM billion)
68 114 170+
e-Commerce
growth(% CAGR)
12.8
2012-2015
10.8
2015-2020
20.8
2015-2020
Socio-Economic Research Centre
• According to PwC, emerging markets will continue to be the growth engine of the global
economy. By 2050, CHINA could be the LARGEST ECONOMY in the world, with India in
second place and Indonesia in fourth place. MALAYSIA will improve to 24th placing from
27th in 2016.
14
#3 Rising GLOBAL COMPLEXITY
Sources: IMF for 2016 estimates, PwC analysis for projection 2030 & 2050
2016 2030 2050
China 1 China 1 China 1
US 2 US 2 India 2
India 3 India 3 US 3
Japan 4 Japan 4 Indonesia 4
Germany 5 Indonesia 5 Brazil 5
Russia 6 Russia 6 Russia 6
Brazil 7 Germany 7 Mexico 7
Indonesia 8 Brazil 8 Japan 8
UK 9 Mexico 9 Germany 9
France 10 UK 10 UK 10
Malaysia 27 Malaysia 25 Malaysia 24
Emerging market will dominate the world’s top
10 economies in 2050 (GDP at PPPs)
Vietnam, the Philippines and Nigeria could make
the greatest moves up the rankings by 2050
Vietnam Philippines Nigeria Malaysia
Average annual GDP growth rate, 2016-2050
5.1% 4.3% 4.2% 3.5%
2050
2016
up 12 places
up 9 places
up 8 places
20th
32nd 28th 22nd 27th
19th
14th
24th
up 3 places
E7 economics G7 economies
Socio-Economic Research Centre 15
The CHINA’S FACTOR in Malaysia’s growth
Some of China’s companies
in Malaysia
Malaysia is China’s
• #11 - export
destination
• #7 - source of
imports
• #7 - top preferred
tourism destination
in 2016
China is Malaysia’s
• #1 - source of imports
(19.6% share in Jan-Nov)
• #2 - export destination
(13.4% share in Jan-Nov)
• #6 - gross FDI flow([email protected]% in Jan-Sep)
• #10 - FDI stock([email protected]% at end-
Sep)
• #3 - tourist arrivals (+8.1%
yoy to 1.9m in Jan-Oct)
Sources: DOS, Malaysia; BNM; Tourism Malaysia; China Customs; China Tourism Academy
Some of China’s projects in
Malaysia
East Coast Rail Line
(est. RM55bn)
Penang Second Bridge
(around RM4.5bn)
Melaka Gateway Deep Sea Port
(est. US$7.2bn)
Malaysia-China
Kuantan Industrial Park
(secured RM30bn foreign
investment)
Socio-Economic Research Centre
• Malaysia will become an ageing population by 2030 when 15% OF OUR POPULATION will
be aged 60 and above (9.9% or 3.2 million in 2017).
• The ageing population and lifestyle illnesses are drivers of growing healthcare expenditure;
dampening productivity, deter investment and elderly people spend differently.
• FISCAL COST ON HEALTHCARE, SOCIAL PROTECTION AND HOUSING will be
substantial for elderly population.
• The combined pressures of ageing and the retirement savings gap might redefine the
concept of retirement into the future (tapered retirement).
16
#4 AGEING population
9.9%
15.3%
19.8%
0%
5%
10%
15%
20%
25%
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
201
9
202
0
202
1
202
2
202
3
202
4
202
5
202
6
202
7
202
8
202
9
203
0
203
1
203
2
203
3
203
4
203
5
203
6
203
7
203
8
203
9
204
0
Population projection for aged 60 years and above(% of total population)
Sources: DOS, Malaysia
Socio-Economic Research Centre 17
Strengthening the QUALITATIVE sources of growth
Sustaining QUALITY investment
• Unfavourable corporate tax rate
• Improve ease of doing business and
business regulations
• Increased Total Factor Productivity
(TFP) and capita intensity
• Contain overinvestment in property
sector
DIGITALISATION, labour skills
and productivity
• Building a connected ecosystem
• Digital technology investments on
business operation and productivity
• Uneven distribution of technological
change benefits
• Investing in workforce skills –
anticipating future skills needs
Supportive FISCAL, MONETARY
& financial policies
• Setting right fiscal priorities
• Structural reforms
• Prioritize social and economic
expenditure and transfer to foster a
balance and inclusive growth
• Prudent monetary policy; safeguard
financial stability; contain excessive
leveraging
Uplift the potential of SMEs
• Facilitate SMEs in e-commerce via
digitalization technology investment
• High value creation in manufacturing
and services
• Manufacturing for the future requires
reinventing through a strong pipeline
of innovations in materials, ICT,
automation of production processes,
robotics and digitalisation to deliver
goods and services
Socio-Economic Research Centre
• Malaysia’s ECONOMIC GROWTH OUTLOOK REMAINS POSITIVE. Real GDP growth for
2018 is now projected to rise by 5.1% (estimated 5.8-6.0% in 2017), with domestic demand
still taking the lead, albeit slower.
• While the welcome cyclical global activity upturn and sustained domestic demand provides
an opportunity for Malaysia to carry forward its current growth momentum, there are
MEDIUM- AND LONG-TERM CHALLENGES that could limit potential for much faster
growth.
• POLICY FOCUS ON QUALITATIVE GROWTH FACTORS, namely supportive tax policies
and regulatory environment, growth inclusiveness, stronger productivity growth, further
enhancement of technological capacity and labour skills, digitalization as well as the driving
of e-commerce growth would help to sustain quality growth.
• The government should EASE THE COST OF RESTRICTIVE LAWS AND REGULATIONS
to provide better conditions for businesses to thrive over the medium-term.
• MONETARY, FINANCIAL AND CREDIT POLICIES should continue to remain growth-
supportive whilst maintaining price and financial stability.
• SETTING RIGHT FISCAL PRIORITIES MATTER. Future fiscal stance should continue to
prioritize social and economic expenditure and transfer to foster a balance and inclusive
growth so as the benefits of economic growth can reach out to all.
18
Conclusion
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
