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社会经济研究中心

SOCIO-ECONOMIC

RESEARCH CENTRE

QUARTERLY ECONOMY TRACKER

(2019 Fourth Quarter & 2020 Outlook)

Malaysia – What to Watch in 2020?

Lee Heng Guie

Executive Director

14 January 2020

Socio-Economic Research Centre 1

What awaits in 2020 and Beyond?

GLOBAL GROWTH STABILISATION ANDRECOVERY?

MALAYSIA: GROWTH IS STEADYING BUTRISKS REMAIN

WHAT COULD GO WRONG?


Section 1

2020 Global Outlook

Looking for stabilisation and

recovery ahead


Source: OECD; Markit; CPB Netherlands; SIA

98

99

100

101

102

Jan2016

Jul Jan2017

Jul Jan2018

Jul Jan2019

Jul

OECD CLI US CLI EA19 CLI Japan CLI

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

48

50

52

54

56

Jan2016

Jul Jan2017

Jul Jan2018

Jul Jan2019

Jul

Manufacturing Services

Global PMI for manufacturing and services

(50 = no change on prior month)

-40

-30

-20

-10

0

10

20

30

40

50

Jan2016

Jul Jan2017

Jul Jan2018

Jul Jan2019

Jul

Global semiconductor sales(%, 3-month moving average YoY)

Worldwide USA China

-4

-2

0

2

4

6

8

Jan2016

Jul Jan2017

Jul Jan2018

Jul Jan2019

Jul

World Trade Volume World IPI

World Trade Volume and IPI

(%)

High frequency indicators show tentative signs of bottoming

out

Socio-Economic Research Centre

Easing of trade tensions uplift positive sentiment. What’s next after the signing

of a “phase one” trade deal between the US and China? A rollback of tariffs in

stage?

Coordinated global central banks’ monetary easing and QE as well as China’s

massive policy stimulus set the scene for stable global growth in early 2020

The upcoming 2020 US Presidential elections

Downside risks: Low or negative interest rates failed to work; limited fiscal space;

bloated global debt; commodity prices volatility; and geopolitical

shocks/disruptions

4

What are the inflection points?

CAUTION IS STILL WARRANTED


Global growth scenarios for 2020

Scenario Probability Projected

global GDP

growth

Upside

• Global growth acceleration

• Policy stimulus is working 20% 3.5%

Base Case

• Global stabilisation and recovery

• Uncertainties over trade still linger;

financial turbulence; geopolitical shocks50% 3.2-3.4%

Downside • Sharp global slowdown

• Reacceleration of trade tensions

• Failure of policy stimulus

• Deepening geopolitical disruptions;

unexpected economic shocks

30% 2.8-3.0%


Global growth projections for 2020 (IMF)


Gold prices continued rallying; Firming commodity prices

Source: World Bank; EIA; MPOB

0

20

40

60

80

100

120

140

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Crude oil prices(US$/barrel, monthly average)

Brent

WTI

Gold prices steadying on

demand, low real interest rate

and safe haven

CPO prices surging higher

supported by demand and a

reduction in inventory

Crude oil prices: Global

growth stabilizes; Supply cut

continues; the US-Iran

tensions

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700

1,800

1,900

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Gold prices(US$/troy oz, monthly)

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Crude palm oil prices(RM/metric tonne, monthly average, local delivered)


-1

0

1

2

3

4

5

6

7

2000 02 04 06 08 2010 12 14 16 18

Policy Rate (%)

Fed ECB BOJ

8

Global central banks’ monetary easing bias remains

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

Source: Fed; ECB; BOJ; Official central banks

• Low or negative interest rate is a new normal again?

• Emerging central banks’ future interest rate move will be data dependent, weighing on the

impact of previous interest rate cuts on the domestic economy as there is a response lag of

up to 18 months for the rate changes to take full effect.

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


Section 2

The Malaysian

Economy

Sustaining growth requires good

execution of policies and

reforms


4.5% GDP growth estimate for 2020. Weighing on cautious global growth

estimates of 3.2-3.4% in 2020 (estimated 3.0% in 2019), the Malaysian economy

is expected to grow by 4.5% in 2020, a tad lower from estimated 4.6% in 2019.

Domestic demand, especially private consumption will be calling the shots, albeit

slower as there remains considerable uncertainty about private investment. The

2020 Budget’s 4.3% increase in development expenditure to RM56.0 billion

should help to provide partial support to the domestic economy. What matters

most is to execute effectively the Budget’s programmes and initiatives; and

to disburse the funds timely for the implementation of projects.

Private consumption is estimated to pace slower to 6.7% in 2020 (estimated

7.2% in 2019), which is normalised towards its long-term growth of 7.0% per

annum in 2011-2018. Underpinning private consumption are stable labour market

condition, albeit an estimated rise in unemployment rate of 3.3%-3.4% and

continued wage growth (4.5%-5.0%) as well as RM5.0 billion cost of living aid to

targeted households and individuals.

10

Malaysia: Navigating a challenging 2020


One of the biggest challenges facing the Malaysian economy is the fast

slowing growth of private investment. The growth rate has been losing steam

in recent quarters to 0.9% in the first nine months of 2019 and likely to end the

year much lower at 0.8% (4.3% in 2018 and 9.0% in 2017), the slowest pace in

nine years after contracting by 7.4% in 2009. For 2020, we expect private

investment to remain cautiously weak, growing by 2.2% as investors stay on

side lines on wary about external conditions, broader domestic political

development, including the leadership transition and policy uncertainties.

The danger is that the persistent pull back on capital spending would take much of

the steam out of the economy going forward and undermine capital formation.

It is thus domestic private investments that form the bulk of private investment (at

least 55% of total), and unless these accelerate, investment cycle will not see a

convincing expansion and hence, exerting downward pressure on the economy.

11

Malaysia: Navigating a challenging 2020 (cont.)


Property overhang in both residential and commercial properties had impacted

private investment in these sectors. For several sectors such as

telecommunication, pharmaceutical, power, automotive, banking and sharing

economy, there have been regulatory and policies changes, including

technological and digitalisation disruptions that have impacted or could impact the

performance of these sectors.

It is positive that the 2020 Budget is making available RM1 billion in customised

packaged incentives to attract investment from Fortune 500 and global unicorn

companies in high technologies, manufacturing, creative and new economic

sectors.

Businesses and investors are seeking certainty in the country’s direction,

policy and regulations. Reviving investor confidence should be a priority. The

economic development policies and benefits of policy interventions aimed at

sustaining quality economic growth and reviving investor sentiment need to be

clearly spelled out, especially in terms of employment and income generation

outcomes.

12

Malaysia: Navigating a challenging 2020 (cont.)


4.3 4.24.5

4.8

5.5 5.66.1

5.75.3

4.5 4.44.7 4.5

4.94.4

4.7 4.6 4.84.5

Q12016

Q2 Q3 Q4 Q12017

Q2 Q3 Q4 Q12018

Q2 Q3 Q4 Q12019

Q2 Q3 Q4 2019EMOF

2019ESERC

2020FMOF

2020FSERC

GDP Growth (%, YoY)

4.2-4.4

13

Source: DOSM; BNM

Leading index indicates continued economic growth

The Leading Index (LI) indicators anticipate the overall economic activity in four

to six months ahead, e.g. LI indicators in Feb indicate performance in Jun-Aug.

-3

-2

-1

0

1

2

3

4

5

2015Aug Nov

2016Feb May Aug Nov

2017Feb May Aug Nov

2018Feb May Aug Nov

2019Feb May Aug

Leading Index Growth (%, YoY)


3.7

4.7

2.4

0

2

4

6

8

10

12

Jan2016

Jul Jan2017

Jul Jan2018

Jul Jan2019

Jul

Overall

Household sector

Business and other sectors

%

Note: Loan data for April 2018 onwards have been revised to include MBSB Bank Berhad.

Source: DOSM; BNM

IPI growth moderated; retail

sales growth slowed

significantly

Overall loan growth continued

to moderate

Exports declined by 2.1% yoy

in Jan-Nov 2019

IPI 2.0

Retail Sales

7.0

0

2

4

6

8

10

12

14

16

Jan2016

Jul Jan2017

Jul Jan2018

Jul Jan2019

Jul

%, YoY

-5.5

-15

-10

-5

0

5

10

15

20

25

30

35

Jan2016

Jul Jan2017

Jul Jan2018

Jul Jan2019

Jul

%, YoY

High frequency indicators suggest continued expansion;

albeit slower


1.9

-20

-10

0

10

20

30

40

Jan2016

Jul Jan2017

Jul Jan2018

Jul Jan2019

Jul

%


Source: DOSM; BNM

Passenger car sales

increased significantly post

the lapsing effect of zero

consumption tax

Imports of consumption

goods

Growth of wholesale, retail,

restaurant and hotels

10.1

-40

-30

-20

-10

0

10

20

30

40

50

60

Jan2016

Jul Jan2017

Jul Jan2018

Jul Jan2019

Jul

%

8.0

6.2

10.2

6.5

0

2

4

6

8

10

12

14

Q12016

Q3 Q12017

Q3 Q12018

Q3 Q12019

Q3

%

Retail Trade

Wholesale Trade

Food & Beverage

Accommodation

Private consumption indicators


2.4

0

1

2

3

4

5

6

7

8

9

Jan2016

Jul Jan2017

Jul Jan2018

Jul Jan2019

Jul

%, YoY


Source: DOSM; BNM

Weak imports of capital

goods indicate sluggish

investment activities

Loans extended for

businesses and other sectorsImports of intermediate goods

also grew unevenly

-4.3

-40

-20

0

20

40

60

80

100

Jan2016

Jul Jan2017

Jul Jan2018

Jul Jan2019

Jul

%, YoY

1.8

-20

-10

0

10

20

30

40

50

Jan2016

Jul Jan2017

Jul Jan2018

Jul Jan2019

Jul

%, YoY

Private investment indicators


Lending barometer by sector


Source: BNM

0

2

4

6

8

10

12

Jan2016

Jul Jan2017

Jul Jan2018

Jul Jan2019

Jul

Working Capital

%

-10

-5

0

5

10

15

20

25

Jan2016

Jul Jan2017

Jul Jan2018

Jul Jan2019

Jul

Primary Agriculture

Manufacturing

Wholesale and retail

Construction

%

-15

-10

-5

0

5

10

15

20

25

Jan2016

Jul Jan2017

Jul Jan2018

Jul Jan2019

Jul

Real estate

Transport, storage andcommunicationFinancing, insurance and businessservicesEducation, health & others

%

Softening loans growth for

working capital

Real estate remains subdued;

transport and communication

still growing

Construction, manufacturing

as well as wholesale and retail

sectors moderated


• Private consumption is the only leg propping up the economy.

18

Slower consumer spending amid cautious sentiment

-6

-4

-2

0

2

4

6

8

10

70

80

90

100

110

120

130

140

150

Q12017

Q3 Q12018

Q3 Q12019

Q3

%

Private Consumption vs. Consumer sentiment index

(CSI)

MIER CSI (LHS)

Private Consumption Growth (RHS)

3.63.8

0

1

2

3

4

5

6

Q22018

Q3 Q4 Q12019

Q2 Q3 Q4

Real private sector wage growth

%, YoY

3.2-4.1

2015-2018 average: 3.1%

Consumer spending likely

to moderate to 6.7% in

2020 (estimated 7.2% in

2019) on cautious

discretionary spending

amid stable employment

and moderate wage

growth.

Note: Real private sector wages are derived from the nominal salaries and wages data, published in the Monthly Manufacturing Statistics and Quarterly

Services Statistics by the Department of Statistics, Malaysia (covering 62.9% of total employment). The nominal private sector wages are then deflated by the

consumer price index (CPI).

Source: DOSM; BNM


• Private investment momentum had moderated from 12.1% pa in 2011-15 to 5.9% pa in

2016-18. It grew at a subdued pace of 0.9% in Jan-Sep 2019.

• SERC expects private investment to increase by 2.2% in 2020 (estimated 0.8% in 2019).

19

Slackening private investment growth is worrying

Downside risks remain:

Concerns related to uncertain external environment, slower global growth

and commodity prices volatility

Challenging domestic business condition, lack of policy clarity; persistent

weakness in the property segment, especially residential & commercial

properties

12.3

7.1 7.4

9.6

1.1

5.55.0

5.8

0.4

1.8

0.3

0

2

4

6

8

10

12

14

Q12017

Q2 Q3 Q4 Q12018

Q2 Q3 Q4 Q12019

Q2 Q3

%, YoY Real private investment growth

Source: DOSM

112.7

114.1

103.1 101.598.6

116.3

108.8

95.3 94.3 94.2

69.0

60

70

80

90

100

110

120

130

Q12017

Q2 Q3 Q4 Q12018

Q2 Q3 Q4 Q12019

Q2 Q3

MIER’s Business Conditions Index (BCI)


Approved investment trend in Malaysia

20

Declining domestic investment approvals

79.8

66.0

175

.1

124

.2

82.7

31.5

38.8 6

4.6 80.1

66.3

0

50

100

150

200

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Jan-Sep2019

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

111.3

104.9

239.7

204.4

149.0

0

100

200

300

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Jan-Sep2019

RM bn

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

Source: MIDA

(+9.2%)

(-23.4%)

(+1.5%)

(+4.4%)

(+6

.5%

)

(+2

.9%

)

(+4

7.3

%)

(-1

5.0

%)

(+9

.5%

)

(+8

.7%

)(-1

4.5

%)

(-3

5.0

%)


-1.0

0.3

-5.0

-8.9

-1.0

2016 2017 2018 2019E 2020F

2020F: 6.1% share of GDP

42.0 44.9

56.1 53.7 56.0

3.0%6.9%

25.0%

-4.3%

4.3%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

-30

-20

-10

0

10

20

30

40

50

60

2016 2017 2018 2019E 2020B

2020B: 18.9% share of total expenditure

(Annual Growth %)(RM bn)

• Development expenditure (DE) is

budgeted to increase by 4.3% to

RM56.0bn or 18.9% of total expenditure

in 2020 (RM53.7bn in 2019).

• Of the 2020 allocation, RM53.2bn is

allocated for 4,744 ongoing projects

while RM2.8bn is for 722 new projects.

• New projects in O&G industries (Kasawari

Gas Development), ongoing projects

(Floating LNG 2).

• MRT2, LRT3, LRT line extension and

ECRL, Tekai hydroelectric and Pasir

Gudang combined-cycle gas turbine; Pan

Borneo Highway, airports expansion,

Singapore–Johor Bahru Rapid Transit

System (RTS Link).

Smaller contraction in public investment Higher development expenditure

Source: MOF; SERC

% growth

A smaller drag from public investment expected in 2020


Where is the 2020’s sources of growth coming from?

Services (2019E: 6.1%; 2020F: 6.0%)

% share of GDP in 2020F: 58.2%

• Supported by tourism related activities and accelerating growth of e-

commerce.

• 5G-driven ICT; increase in bank lending and higher fee income;

operation of new highways.

Manufacturing (2019E: 4.4%; 2020F: 3.9%)


• Benefit from global electronics supply chains following the US-China

trade and technology dispute and uptick in electronics cycle.

• Domestic-oriented industries (consumer and construction-related

clusters).

Agriculture (2019E: 4.6%; 2020F: 2.5%)


• Higher output of palm oil (2020: 22.2 mil tonnes vs. 21.0 mil tonnes in

2019); CPO average prices at RM2,100 per metric tonne in 2020 vs.

RM2,079 in 2019; Higher demand (bilateral trade deal) from China.

• Higher production of rubber and food products (except aquaculture).


Where is the 2020’s sources of growth coming from? (cont.)

Mining (2019E: 0.5%; 2020F: 0.8%)


• Strong demand from petrochemical industry; rising exports of LNG.

• Commencement of the North Malay Basin Full Field Development

(FFD – Phase 2), Gorek, Integrated Bokor (Phase 3), Betty

redevelopment projects.

• Crude oil subsector is expected to increase moderately, underpinned

by the development of Anggerik FFD, Zetung FFD and Bayan Oilfield

(Phase 2B and 2C).

Construction (2019E: 0.8%; 2020F: 1.5%)


• Acceleration and revival of mega projects and building of affordable

housing.

• Civil engineering segment: ECRL; MRT2; LRT3; Electrified Double

Track Gemas-Johor Bahru; KVDT2; Central Spine Road; Pan Borneo

Highway; and Coastal Highway in Sarawak.

• Non-residential subsector remains subdued, dragged by persistent

overhang.


Lethargic exports growth

24

Exports to recover gradually in 2020 (+2.0% vs -1.5 to -2.0%

in 2019)

-1.9-10

0

10

20

30

Q12017

Q3 Q12018

Q3 Q12019

Q3

Export growth%, YoY

-5.8-10

0

10

20

30

Q12017

Q3 Q12018

Q3 Q12019

Q3

Import growth%, YoY

Diversified exports helped

mitigating the impact of

weaker E&E export growth

Malaysia’s exports compared

to regional economies

-1.1-0.4

-1.9

-6

-4

-2

0

2

4

6

8

10

Q22018

Q3 Q4 Q12019

Q2 Q3

Malaysia’s export by product

E&E Non E&E

Agriculture Mining

Overall

Overall (%, YoY)

Components (%-pt contribution)

Note: Mineral products data taken is the data of mining products

Source: DOSM; Officials

-15

-10

-5

0

5

10

15

Q12018

Q2 Q3 Q4 Q12019

Q2 Q3

Regional economies export performance

Thailand (USD)Indonesia (USD)Singapore (SGD)Phillipines (USD)Malaysia (MYR)

%, YoYJan-Nov 2019

-2.1% yoy

Jan-Nov 2019

-3.9% yoy


• Headline inflation normalised to 1.4%-1.5% in

Jun-Aug 2019 and continued to soften to 1.1%

in Sep-Oct and 0.9% in November (0.2% in 1H

2019). In Jan-Nov 2019, the consumer price

index (CPI) increased by 0.6% yoy.

• Excluding the impact of changes in

consumption tax policy, core inflation

remained healthy at 1.4%-1.6% since Apr

2018.

• SERC expects headline inflation to average

0.7% in 2019 and will pick up to 2.0% in

2020 due to some cost pass-through from

domestic cost factors. These include:

Minimum wage

Digital tax

Potential increase in water tariffs

Crude oil and commodity prices

development

Low-base effect in 1H 2019

25

Headline inflation will average higher in 2020

-20

-15

-10

-5

0

5

10

15

20

25

-8

-6

-4

-2

0

2

4

6

8

10

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

%% Inflation Rate

Headline Inflation Rate (LHS)

Core Inflation Rate (LHS)

Transport Inflation Rate (RHS)

Note: Core inflation in 2008-2014 excludes food and non-alcoholic beverages only.

Source: BNM; DOSM


BNM keeps rate cut door open

3.00

0.9

-1

0

1

2

3

4

5

Jan2015

Jul Jan2016

Jul Jan2017

Jul Jan2018

Jul Jan2019

Jul

%

OPR Inflation Rate

Inflation will average higher in 2020 Ringgit outlook at RM4.00-4.05 per US dollar at

end-2020

Source: DOSM; BNM; SERC

* OPR as at end-year

-6.1%

-18.6%

-4.3%

10.4%

-1.8%

1.1%

3.4950

4.2920

4.4860

4.06204.1385

4.0925

2014 2015 2016 2017 2018 2019

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

Year 2015 2016 2017 2018 2019E 2020F

OPR

(%)*3.25 3.00 3.00 3.25 3.00

2.75-

3.00

Inflation

Rate (%)2.1 2.1 3.7 1.0 0.7 2.0

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

• BNM cut the overnight policy rate by 25 bps to 3.00% in May. SSR was reduced by 50bps

to 3.00% effective 16 November.

• Reserve monetary arsenal while continue to assess the impact of rate cut on domestic

demand.


1.5

2.1

9.0

4.3

0.8

2.2

2017 2018 2019E 2020F

Private Investment Growth

(%)

6.8

6.96.9

8.0

7.2

6.7

2017 2018 2019E 2020F

Private Consumption Growth

(%)

27

Malaysia’s key economic indicators

Source: DOSM; EIA; MPOB; MOF; SERC

4.7 4.85.7

4.7 4.6 4.5

2017 2018 2019E 2020F

Real GDP Growth(%)

SERC

MOF

SERC MOF

SERCMOF

0.11.0

18.8

7.3

2.0

2017 2018 2019E 2020F

Gross Export Growth

(%)

-1.5 to -2.0SERC

MOF

0.9

3.7

1.00.7

2.0

2017 2018 2019E 2020F

Inflation Rate(%)

SERC

MOF

3.4

3.3 3.3 3.3

2017 2018 2019E 2020F

Unemployment Rate(%)

MOF SERC

6254

71

64

61

2017 2018 2019 2020F

Brent Crude Oil Prices

(US$/barrel)

60-65MOF

SERC

2,100

2,783

2,233

2,079

2,600

2017 2018 2019 2020F

Crude Palm Oil Prices

(RM/metric tonne)

MOF

SERC

EIA

SERCMOF

SERC MOF

MOFSERC


% growth, 2015=100 2017 2018 2019

Jan-Sep

2019E

(MOF)

2019E

(SERC)

2020F

(MOF)

2020F

(SERC)

GDP by demand component

Private consumption (58.1%) 6.9 8.0 7.5 6.8 7.2 6.9 6.7

Private investment (16.8%) 9.0 4.3 0.9 1.5 0.8 2.1 2.2

Public consumption (12.1%) 5.5 3.3 2.4 2.0 2.7 1.5 2.0

Public investment (6.5%) 0.3 -5.0 -12.3 -8.1 -8.9 -0.6 -1.0

Exports of goods and services (64.3%) 8.7 2.2 -0.4 -0.4 -0.7 1.4 1.2

Imports of goods and services (56.7%) 10.2 1.3 -2.3 -2.1 -1.6 1.9 1.0

GDP by economic sector

Agriculture (7.3%) 5.7 0.1 4.5 4.3 4.4 3.4 2.5

Mining & quarrying (7.3%) 0.4 -2.6 -1.2 0.6 0.5 0.3 0.8

Manufacturing (22.2%) 6.0 5.0 4.0 4.0 4.0 4.1 3.9

Construction (4.7%) 6.7 4.2 -0.3 1.7 0.8 3.7 1.5

Services (57.5%) 6.2 6.8 6.1 6.1 6.1 6.2 6.0

Overall GDP 5.7 4.7 4.6 4.7 4.6 4.8 4.5

28

Sources of GDP growth in 2020: Demand and Supply side

Figure in parenthesis indicates % share to GDP in 2019E by MOF

Source: DOSM; BNM; SERC

• Private consumption remains resilient; public investment will decline marginally

• All economic sectors are expected to register positive growth, albeit slower


Section 3

Malaysia in 2020

What are the priorities?


2020 Outlook

Malaysians

Households

Businesses

Investors

Hope for:

Stable

Economic

&

Business

Conditions

Strengthening:

Domestic

Economic

Financial

Resilience

External

Shocks

Against:

Aim:Become a Developed High Income Nation

– Shared Prosperity Vision

by

2024

Challenges and Issues:

bolster

public

finances

Raising

productivity

and capital

efficiency

through innovation

improve

workforce

skillreinvigorate

private

investment

Narrow regional

growth

disparity

through

improve

inclusiveness

address

cost of

living


Priorities for the Government

Smooth

Leadership

Transition

• Political stability is a variable of great importance in building a coherent

and continuous path for sustainable development.

• Policy continuity post leadership transition.

• Unstable political environment may undermine investors’ confidence,

reduce investment and hinder the pace of economic development.

• Put aside rampant political bickering, conflicts and infighting.

Recognise and deal with issues arising from external headwinds and

domestic structural weaknesses that are impacting the domestic economy.

Setting Clear

Direction

• Investors and businesses want 3Cs (Clarity, Consistency and Continuity)

whilst maintaining a competitive and business friendly environment.

• The Eleventh Malaysia Plan (2016-2020) enters the last lap. The Twelfth

Malaysia Plan (2021-2025), which premises on the Shared Prosperity

Vision (SPV) 2030 will be unveiled in August 2020.

• The New Industrial Master Plan will be rolled out to shape, structure and

direct Malaysia’s industrial development in an era of digitalisation, advanced

and smart technologies.


Deliver on All

Remaining

Unfulfilled

Promises

• The PH will have to start delivering on the remaining 40% of PH

Manifesto promises in time for the next general elections in 2023.

• At least, if the promises cannot be fulfilled, it must be explained to the

people and provide a time-frame for their implementation.

Rectify the

Weakness in

Government’s

Communication

• Effective communication strategy is the utmost important channel to

communicate with public on the issues and problems facing the nation.

• Show great interest in others that have valuable viewpoints, which the

policymakers can listen to.

• We should practice two of Stephen Covey's great principles from his classic

“The Seven Habits of Highly Effective People”:

1. Seek to understand before trying to be understood; and

2. Look for a win-win solution.

Good and

Timely

Execution of

Programs and

Projects

• Take no chances to cause a delay or slow in the disbursement of funds.

• The fiscal multiplier with minimal leakages can affect the national economy

via spending, consumption, and investment levels.

• The Federal government, Ministries and agencies must ensure that

development expenditure allocated under the national budget will be used

promptly and disbursed in a timely manner.

32


Addressing

Burning

Economic and

Social Issues

• The National Action Council on Cost of Living (NACCOL) must lay out short-

to medium-term action plans to ease the burden of high cost of living

covering food and necessities; transportation; healthcare, housing and

education.

• Cost of living depends on two elements: Prices and income. The

“income-based” approaches helping to alleviate the burden of rising cost of

living and raise the incomes of the poor through targeted cash transfers, tax

breaks, and minimum wage and targeted subsidies for essential goods and

services, including freezing of toll rates hike and unlimited rides on public

transport (MRT, LRT and buses).

• RM6.5 billion Malaysia@Work initiative unveiled in Budget 2020, which

will commence in stages from 2Q 2020 facilitated by Ministry of finance

through the Employees Provident Fund (EPF).

• On the targeted fuel subsidy, which was put on hold from implementation

on 1 Jan 2020, would exert fiscal pressure if oil price rises to high levels on

a sustained period from the Budget’s oil price assumption of US$62 per

barrel.

• Based on current crude oil price of US$68 per barrel, and retail consumption

of about 1.2 billion litres of petrol monthly (up to 90% is subsidised RON95)

as well as capping the pump price for RON95 at RM2.08 per litre, we

estimate a subsidy of about RM0.27 per litre, this translates into about

RM93 million fuel subsidy per week and RM4.8 billion per year.

33


Section 4

Surging Oil Prices

How it will impact Malaysia?


• Recent studies point to a weakening relationship between oil prices and economic

growth.

• Much larger effects of oil price shocks on inflation and real economic activity in

1970s than in 2000s due to:

a. The underlying shocks driving oil prices (Supply vs. Demand shocks) as oil

price increases induced by supply shocks have much more pronounced effects

on the economy than those due to demand shocks; and

b. The transmission of oil price shocks can change with the structure of the

economy and policy framework. For example, continued energy efficiency

gains achieved.

35

Preliminary observations on the US-Iran tensions

• A sustained tensions rise in the Middle East,

inflicted by the US-Iran’s conflict could have global

repercussions through its effect on oil prices.

• Wide-ranging implications through broad

economic and financial shocks.

• Geopolitical shocks have caused safe haven

assets like gold and bonds to rally and oil prices

surged to multi-month highs.


Crude oil prices vs. World’s & Malaysia’s GDP growth trend

-10

-5

0

5

10

15

% World's GDP growth Malaysia's GDP growth

0

20

40

60

80

100

120

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

US$/bbl

Average crude oil prices

1974: OPEC oil embargo ended

1980: Iran oil embargo

1979: Iran-Iraq War, Fed funds rate 20%

1977: US Fed hiked interest rate, and subsequently lowered it

1985-86: OPEC increased supply

1991: Strategic Petroleum Reserve (SPR) released oil

1990: Gulf War

1998: Global recovery

1997: Asian Financial Crisis

2002: Afghanistan War

2001: Recession and 9/11 attack

2005: Hurricane Katrina

2006-07: Banking & Financial crisis

2012: Iran threatened

Straits of Hormuz

2014:Shale oil

revolution

2016-17:

OPEC+

oil supply cut

Source: World Bank; MEA; thebalance.com Note: GDP for 2019 based on MOF’s estimates

2008-09: Global

Financial Crisis


Average monthly crude oil prices

Jan 1974, 13.0

Oct 1978,12.9

Nov 1979,40.8

Nov 1985,28.6

Jul 1986,9.6

Jul 1987,19.6

Oct 1988,12.2

Oct 1990,34.5

Dec 1996,23.6

Feb 1999,10.8

Dec 2001,18.5

Sep 2005,61.7

Aug 2006,71.8

Jan 2007,53.5

Jul 2008,132.8

Feb 2009,41.8

Apr 2011,116.2

Jun 2012,90.7

Feb 2016,31.0

Dec 2019, 63.35

0

20

40

60

80

100

120

140

US$/bbl

Source: World Bank

1970

Shaded area represents major event(s) which led to oil price shock.


• Mining exports contributed only 8.7% of total national exports in 2018 (Jan-Nov 2019:

8.1%). Crude oil accounted for 3.7% of total exports (Jan-Nov 2019: 2.7%) and liquefied

natural gas (LNG) accounted for 4.2% of total exports (Jan-Nov 2019: 4.2%).

• Mining production made up 7.6% of total GDP in 2018 (Q1-Q3 2019: 7.2%).

• Investments in the mining sector account for only 13.8% of the total investment.

• Oil and gas made up 43.6% of trade balance in 2018 (Jan-Nov 2019: 26.9%).

• In 2018, crude oil’s trade balance was 1.0% of total GDP while for LNG was 2.7% of GDP.

38

Contribution of oil and gas sector to the Malaysian economy

1.3

32.2

0

10

20

30

40

50

60

70

2013 2014 2015 2016 2017 2018 Jan-Nov2019

RM bnNet exports

Crude oil LNG

Source: DOSM

-7.5

4.1

-15

-10

-5

0

5

10

15

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

%, YoY Crude oil GDP growth LNG GDP growth

(Q1-Q

3)


0

10

20

30

40

50

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019*

RM bnExports Imports

39

Crude oil and LNG are major foreign exchange earners

Source: DOSM

0

10

20

30

40

50

60

70

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019*

RM bnExports Imports

Crude oil trade

LNG trade

* refer to Jan-Nov 2019


• Oil-related revenue in Budget 2020 is based on the assumption of crude oil prices at US$62

per barrel.

• Oil prices volatility on a sustained basis would affect the overall budget, e.g. The

recalibration for 2015 Budget and 2016 Budget.

40

Contribution of oil-related revenue to Federal revenue

21.9

24.8

22.5

20.4

25.2

29.7

36.9

36.6

39.9

41.3 35.4

35.8

33.7

31.2

30.0 21.5 14.6

15.7

23.4

30.7 2

0.7

0

20

40

60

80

100

120

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019E

2020B

Source of Federal Revenue Brent oil price (US$/bbl)

Oil-related revenue

Source: MOF

Other revenue


First order impact: Positive on exports and oil-related revenue

a. For every US$1 increase in oil price, it will generate RM300 million revenue

(petroleum income tax and petroleum royalty)

b. Petronas dividend in 2020: RM24 billion

c. Fuel subsidy on RON95: Estimated RM93 million per week @ RM4.8 billion per year on

retail pump price of RM2.35 per litre against the subsidised level of RM2.08 per litre

d. Headline inflation: Depend on the quantum of fuel price subsidy and the pass-through.

Fuel carries a weightage of about 8.5% in transport category of the CPI basket

41

Quantifying the impact of oil price increases

Second order impact: Moderately negative via slowing exports

a. The oil shocks dampen the already slowing global economy

b. Increase in operation cost and tighter financial conditions

c. Trade growth may be impacted amid the receding trade tensions


Overall net impact on the Malaysian economy – Moderately small

• Domestic demand needs to hold up to mitigate the external headwinds

• Fiscal spending has to be implemented timely and efficiently

• Growth drivers

a. Services – Domestic spending related to tourism, e-commerce and 5G

b. Construction – Revival of ECRL, LRT3 and on-going projects (MRT2, Pan Borneo

Highway) as well as socio-economic projects

c. Manufacturing – Moderate recovery in semiconductor sales, especially wireless

technology in 5G; construction-related building materials

42

Quantifying the impact of oil price increase (cont.)


Section 5

Visit Malaysia Year

(VMY) 2020

Plucking the low hanging fruits


7.410.2

21.0

27.0 25.9 25.8

20.1

30.0

1990 1994 2007 2014 2017 2018 Jan-Sep2019

2020

Number of tourist arrivals (million)

• According to the World Travel and Tourism Council (WTTC), travel and tourism activities in

Malaysia has accounted for 13.3% of GDP in 2018 and contributed 11.9% of total

employment.

• The numbers of tourist arrivals to Malaysia are stagnating in the recent years while

neighbouring countries are catching up fast and continuously refine their offerings of tourism

products.

44

The Visit Malaysia Year (VMY) 2020 targets 30 million tourist

arrivals and RM100 billion tourist receipts

Source: My Tourism Data

Target

1st

2nd

3rd

4th 5th

Can we

achieve

the target?

(RM46.1bn)

[6.9% of GDP]

(RM72.0bn)

[6.5% of GDP]

(RM82.2bn)

[6.0% of GDP](RM84.1bn)

[5.8% of GDP]

(RM66.1bn)

[5.9% of GDP]

(RM100.0bn)

[6.2% of GDP]

Note: Figure in parenthesis indicates tourist receipts and % to nominal GDP.


• Key contributor in services current account: RM79.2 billion of forex inflows in 2018.

• In terms of GDP, tourism-related services (wholesale, retail trade, accommodation,

food and beverages, transport and storage as well as information and

communication) made up 27.8% of total GDP.

• ACCCIM M-BECS: 78.2% of respondents indicated that “Malaysia has not harnessed

the full potential of tourism” while 81.0% of respondents concurred that “Malaysia’s

tourism is lagging behind its neighbours”.

45

Tourism a major source of foreign exchange earnings

24.2

46.1

72.0

84.1

66.1

100.0

2001 2007 2014 2018Jan-Sep

20192020T

Tourist Receipts (RM billion)

VMY

VMY

VMY

Source: My Tourism Data; DOSM; BNM

26.1

48.3

74.079.2

62.6

20

01

20

07

20

14

20

18

Q1-Q

3 2

019

Travel Export Services (RM billion)

VMY VMY

(+37%)

Note: Parenthesis denotes as “Year-on-Year (YoY) change

(+26%)

(+9%)(+0.3%)

(+7.3%)

(+27%)

(+10%)

(-0.4%)

(+3.7%)


• According to a Dynamic Computable General Equilibrium analysis1, a 10% increase in

tourist arrivals will contribute to higher GDP by 0.033 percentage points and

employment by 0.007 percentage points.

• With greater inter-sectoral linkages, some industries such as recreation and air transport will

benefit indirectly from the expansion of the tourism industry.

46

Malaysia should step-up to attract higher tourist arrivals

1 Reported in MOF’s Economic Outlook 2020

Source: MOF

Macro Result, 2020 Industries Benefitting from Tourism, 2020


• As Malaysia will be hosting several international conferences, namely Asia-Pacific

Economic Cooperation (APEC) and World Congress on Information Technology

(WCIT) in 2020, 2020 is the year to attract more tourist arrivals. The Government should

sharpen the promotion approaches amid improve the tourism experiences.

• The extension of visa-free passes to China and India tourists till end-2020 is a positive

move. Several immediate measures are recommended:

47

Harnessing the low hanging fruits

Further enhance the effectiveness of tourism promotion, marketing and

branding, prioritise the tourism sector compared to other initiatives, particularly

enhancing eco-tourism appeal as well as targeting quality spending tourists from

China and Middle-East.

Restore the country’s reputation through more publicity and stepping up the

surveillance of tourists’ travelling safety. Malaysia has low ranking in terms of safety

and security (ranked 91st) as well as overall cleanliness and hygiene (ranked 108th).

Front-services counters at airports must be enhanced with the support of well-

staffed and offer friendly services as well as can speak a few languages.


Harnessing the low hanging fruits (cont.)

Local authorities and municipal councils should be more flexible for night time

activities as some tourists like to have fun and activities in city until late hours.

Increase budget hotel’s revenue threshold subjecting to SST from RM500,000

to RM1.5 million to improve their competitiveness.

Increase the supply of quality tour guides to serve the higher number of tourists,

conduct a short and simplified course for part-time tour guides to take care of

tourists from China.

Organise mega food fiesta in major states to showcase colourful diversity of

Malaysian food culture. Some nationwide food hunting tours to drive Malaysia as a

food heaven.

Ease congestion in Malaysia-Singapore causeway as tourist arrivals growth from

Singapore has been slowing/declining in recent years.

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

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