Malaysia economic outlook Grow smart, grow strong

Transcription

1 Malaysia economic outlook Grow smart, grow strong Mahamoud Islam, Senior Economist for Asia at Euler Hermes-Allianz Research Kuala Lumpur, 8 May 2017

2 Bridging the gap 2

3 High-income status: bridging the gap gradually Economic growth is set to edge up slightly in 2017 supported by higher global demand and resilient domestic demand. High income status: To achieve the target of US$15,000 in 2020, gross national income per capita should grow by +13% per year. Real GDP growth World United States China Key forecasts for Malaysia Real GDP Consumer Spending Government Spending Investment Exports Imports Net Export** Unemployment rate Inflation Current Balance (% of GDP) Nominal GDP*** MYR per USD ,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 GNI per capita simulation (USD) Gross national income per capita (Trend, 6% growth p.a.) Gross national income per capita (Path to target) Target * growth unless specified **contribution to GDP growth *** in MYR bn Sources: IHS, Euler Hermes Sources: National data, Euler Hermes 3

4 Agenda 1 What does 2017 mean for Malaysia? 2 What to expect in the longer term? 4

5 Stars are aligning 5

6 Exports: stars are aligning Global trade is showing signs of revival. We expect global trade value to increase by +3.6% Global exports of goods and services Commodity prices are slowly improving. Downward pressures on the currency are easing gradually Brent prices and MYR per USD Assumptions: Brent prices expected at USD57 per barrel in 2017; USD59 in Brent price (lhs) MYR per USD (rhs) F Forecast Sources: IHS, Euler Hermes Sources: IHS, Euler Hermes 6

7 s partner #1: China 7

8 Exports partner #1: China. Deflation has ended and investment is back Manufacturing deflation has ended The investment (industrial) cycle is showing signs of revival at a high cost. 15 Producer prices (y/y) 30 Investment and Industrial production Urban Investment (YTD y/y, left) Industrial production (YTD y/y, right) Sources: IHS, Euler Hermes Source: Euler Hermes 8

9 Exports partner #2: United States. 9

10 Exports partner #2: United States. Trumponomics could create an expansionary cycle Policy building blocks: Tax reform, trade and immigration policies seem to be the top priority. Our base case is a domestic demand-led acceleration. Fiscal stimulus & infrastructure Infrastructure: half of announced (~USD 500bn over ten years) Income and corporate tax cuts no border tax adjustment Higher budget deficits: (1.75%-2% of GDP) Real GDP growth Consumer spending Trade policy Immigration policy Regulation & Energy Stalled trade liberalization Renegotiation/termination of NAFTA Higher import tariffs (China, Mexico) no broad-based tariff hikes/nontariff barriers Reduction (cheap) labor supply, higher wages low-skilled US workers Deportation (reduced domestic demand) Lifting restrictions on production Reversing environmental priorities Less financial regulation Higher competition in tech sector? Private investment Public spending Net exports* Unemployment rate Consumer price inflation *Contribution to growth (percentage points) Policy rate Current account (% of GDP) In bold our policy assumptions for computing the base case Source: Allianz Research 10

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12 Investment: better revenues and improving demand suggest a progressive improvement Better revenues provide some leeway for increased capital expenditures Business sentiment is improving supported by rising output and new orders 30 Industrial revenues (3m rolling average, y/y) Nikkei Manufacturing PMI (3m rolling average) Manufacturing PMI Subcomponent - Output Subcomponent - New Export Orders Sources: IHS, Euler Hermes Sources: IHS, Euler Hermes 12

13 Private consumption to prove resilient but no acceleration is expected in 2017 Confidence and employment growth are improving but weak income growth and higher inflation point to a limited momentum Employment growth Wages and prices Consumer confidence (left) Employment growth (y/y) % 8% Monthly wages for the manufacturing sector (y/y) Consumer prices (y/y) % % % % % N.B. Estimate for Q1 Employment growth Sources: IHS, Euler Hermes Sources: IHS, Euler Hermes 13

14 Agenda 1 What does 2017 mean for Malaysia? 2 What to expect in the longer term? 14

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16 Issue #1: Financial capabilities are limited High debt burden calls for caution. Policy makers to maintain prudent policy stance Saving and Investment: reduced national buffers give little room for a strong rise in investment Debt metrics (% GDP) Public debt Saving- Investment Saving-Investment Gap 100 Households debt Gross national saving (% Gross national Income) Domestic Investment (% Gross national Income) Forecast 0 Malaysia Thailand Philippines Indonesia Sources: BIS, IMF WEO, Euler Hermes Sources: IHS, Euler Hermes 16

17 Issue #2: Competition from neighboring countries is intensifying Regional manufacturing powerhouses are becoming very aggressive to grab market share (Vietnam, Thailand) Similar specialization adds further pressure 1.6% 1.4% 1.2% 1.0% 0.8% Exports market share Country s exports (% global exports) % 1.3% % 0.9% Electrical machinery and equipment (% total exports) 0% 10% 20% 30% 40% 50% Philippines Taiwan Singapore Malaysia 0.6% 0.4% 0.2% 0.0% 0.4% Thailand Viet Nam Malaysia Indonesia Philippines Vietnam China South Korea Sources: IHS, Euler Hermes Sources: UNCTAD, Euler Hermes 17

18 US Russia India Argentina Brazil Indonesia Japan China UK Turkey Issue #3: Protectionism and Politics When in peril, retrench: the world is addicted to protectionism as World GDP growth is subdued since 2011 New protectionist measures Busy political agenda everywhere and geopolitical tensions create a vast array of uncertainties for companies Political watch list ( ) World= World= World=888 Asia General elections in Malaysia Chinese Communist Party Congress Geopolitical tensions due to North Korea US US monetary policy US Midterm Elections Europe Brexit developments French Presidential elections German Federal elections Russian Presidential elections Sources: GTA, Euler Hermes 18

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20 Game changer #1: A more supportive business environment to become a capital magnet This includes continued efforts to improve: the regulatory framework to enforce contracts; the tax environment; and insolvency related procedures Economy Doing Business 2017 and sub-components (ranking out of 190 markets, 1=best) Ease of Doing Business Rank Resolving Insolvency Enforcing Contracts Protecting Minority Investors Paying Taxes New Zealand Singapore Denmark Hong Kong South Korea United Kingdom United States Taiwan Australia Malaysia Sources: World Bank, Euler Hermes EH Collection Complexity Index (100: highest complexity) Saudi_Arabia UAE Russia China Malaysia Indonesia Mexico Slovak_Republic Argentina Thailand Colombia Morocco India Czech_Republic Brazil Hungary Poland Italy Turkey USA Source: Euler Hermes

21 Game changer #2: Competiveness is not just about prices Driver #1: Innovation. Spending and R&D are low (1.3% GDP) compared to trade leading markets Driver #2: Infrastructure. Hard (physical) and soft (quality service, e.g.) infrastructure matter High value added exports and R&D expenditures Sub-components of the World Bank Logistic Performance Index (ranking out of 160 markets, 1= best) // 10 Market share in high-skill and technology-intensive manufactures exports (left)* R&D expenditures (% GDP, right) Quality of infrastructure Customs clearance efficiency Timeliness of delivery Singapore Hong Kong South Korea Taiwan Malaysia Thailand Indonesia * country s exports (% global exports) Sources: World Bank, OECD, UNCTAD Euler Hermes Sources: World Bank, Euler Hermes 21

22 Game changer #3: New growth drivers Digitalization & Servitization Digitalization accounts for 9.4% of annual global economic output. By 2020, it will account for 16.6% of global economic output. Servitization. In Malaysia, services have grown steadily, relatively immune to previous economic shocks (commodity crisis, weak global trade) EH Enabling Digitalization Index 60% Malaysia - Services (% GDP) 55% 50% 45% Sources: World Bank, Euler Hermes 40%

23 Game changer #4: Selective Partnerships (1) Deepen Ties with ASEAN members Merchandise exports to ASEAN account for 28% of Malaysian exports. ASEAN GDP growth is set to be around 5% over benefitting from strong domestic demand ASEAN Economic Community: Three clusters for growth MaSTers: Malaysia, Singapore and Thailand Superior business environment, logistic infrastructure, access to financing, FDI inflow. Diversified economic base with exporting companies well positioned in the global value chain. Strong positioning in automotive (Thailand); electronic and electrical industries (all) and refined energy (Singapore, Malaysia). VIPs: Vietnam, Indonesia and Philippines Good mix of favorable demographics and strong economic growth, industrialization hub. Business environment, trade infrastructure and access to financing improving slowly but surely. Highly specialized exporters: Electronics in the Philippines, primary commodities in ID, light Electronics and Electric products and Textiles in Vietnam. CLiMBers: Cambodia, Laos, Myanmar and Brunei Less integrated in global supply chains, not globalized yet, weak domestic banking system Still challenging business environment, trade infrastructure is lagging behind Strong competitive advantage for labor intense industries (resource rich or and cheap labor costs) Sources: IHS, Euler Hermes 23

24 Game changer #4: Selective Partnerships (2) Leverage on China s Belt and Road Strategy There are at least two OBORtunities to take for Malaysia: a capital boost as China invests further in Malaysia; and a demand boost for Malaysian exporters as trade links deepen Foreign Direct Investment approved for the Manufacturing Sector (MYR, bn) 13.1% Merchandise exports to China (% total merchandise exports) % 13.0% % % 12.7% % 12.6% % % 12.3% Sources: Malaysian Investment Development Authority, Euler Hermes Source: Euler Hermes 24

25 Appendix 25

26 World: Lifting the lid on the global economy In the second half of 2016, growth recovered to slightly above +3%. Weakness in the US is over World GDP growth q/q annualized rate Surveys also show some acceleration and some kind of overly optimistic bets World: composite PMI per region 5% 4% Others APAC ex China ex Japan Japan China World aggregate Fragile Four India Europe US 3% US China Japan Eurozone 58 3% 56 2% % 50 0% 48-1% 13Q1 14Q1 15Q1 16Q Fragile-4 are Brazil, Russia, Turkey and South Africa Source: Euler Hermes Source: Euler Hermes 26

27 World: Global uptick starts improving country risk profile Despite the recent recovery, global GDP growth will not exceed the +3% threshold unless US growth accelerates further by 0.5pp GDP growth, %, Country risk shows timid improvement: a matter of growth revival (Brazil, Russia), and better FX reserves (Argentina, Egypt) Changes in ratings ME, FFI, CRI by quarter Global GDP United States United Kingdom Q4 16 Q1 17 Eurozone Germany Russia Turkey China Japan India ASEAN-6* Saudi Arabia FFI CRI ME South Africa * Singapore, Malaysia, Thailand, Philippines, Indonesia and Vietnam Weights in global GDP at market price, 2016 Sources: IHS, Euler Hermes Note: n Q = 15 n Q = 18 FFI = financial flows CRI = business cycle ME = macroeconomic imbalances Source: Euler Hermes 27

28 Commodities & Currencies Equities Bonds World: Global risk appetite is up, and financial risk-taking strikes back As nominal growth recovers, corporates (equities) and commodities should benefit, as shown by market impacts Financial markets, performance in % Barclays Euro-Aggregate Barclays U.S. Aggregate -25% -15% -5% 5% 15% -3% -4% 1% 1% A bridge too far? In the US, equity prices factored in many good news. Probably too many. Beware the roller coaster. US: ratio equity index (S&P) to bond index (Barclays) detrended, +/- means equity over/under(valuation) 1 Nasdaq bubble: Pr. Trump Stronger election overvaluation 0.5 ever S&P 500-6% 13% 0 Euro Stoxx 50 Oil (Brent, $ per bbl) Bloomberg Industrial Metals S&P GSCI Agricultural -18% -13% -2% -4% 2% 14% 13% 10% % 1% 2009 crisis: Stronger undervaluation ever US GDP Growth q/q EM Currencies -2% 0% 0% -1% 1-year ago nov-16 to mar-17-2% Sources: Bloomberg, Euler Hermes Sources: Bloomberg, Euler Hermes 28

29 World: Trade. No disruption in sight, despite tough words Trade is showing some signs of revival with improving new orders in China, the US, and the EU World trade growth and Euler Hermes Trade Momentum Index (TMI) Global trade to increase by +3.6% in Volume growth to accelerate. Positive price effect to be offset by a stronger dollar Global exports of goods and services Source: CPB, Official sources, ISM, Eurostat, Euler Hermes Sources: IHS, Euler Hermes 29

30 World: Insolvencies. The decline is coming to an end but mind the nuances After a sharp deceleration from previous years the declining trend in worldwide insolvencies will end in 2017 Euler Hermes Global Insolvency Index (basis 100 in 2000) In 2017, insolvencies will decrease only in Europe, while rising in Latin America (+7%), in Asia-Pacific (+4%) and North America (+4%) Change in the number of insolvencies, selected countries, y/y % Source: Euler Hermes Source: Euler Hermes 30

31 China: Rebalancing priorities GDP growth to prove firm in 2017 and Reflation to contribute to stronger nominal GDP growth. Source: Euler Hermes Key forecasts Growth if not specified 2017f 2018f Real GDP growth Total domestic demand Final consumption expenditure Gross capital formation Gross fixed capital formation Change in inventories (contribution) Net exports(contribution) Exports of goods and services Imports of goods and services In % GDP 2017f 2018f Current Account Balance For reference 2017f 2018f Consumer Inflation (year average) RMB denominated GDP growth (y/y) USD denominated nominal GDP growth RMB/USD (year average) Policy rate (year average) Fiscal balance (% GDP) Policymakers to focus on addressing economic fragilities 5 Challenges for Chinese policy makers Promote Credibility Consistent and reasonable targets needed GDP growth to be around +6.5% in 2016 Manage the Currency Downward pressures to prevail: (i) hawk Fed, (ii) lower economic growth and lower (iii) ROI in China RMB to depreciate and stabilize around 7RMB/USD in 2017 and 2018 Reduce excess Capacities Increased producer prices was supported by last year stimulus Supply side adjustment is needed (with SOEs reform, more selective government support) Contain Credit risk Corporate debt at 170% of GDP. Credit growth above GDP growth Corporate insolvencies to grow by +10% in 2017(+11% in 2016) Focus on Commerce USD denominated Goods exports decreased by -7.7% in 2016 Outlook is hindered by potential protectionist policies taken by the US 31

32 Japan: Patience and Tenacity are paying off In the short-term, lower yen, improved corporate profits and stronger credit growth point to a positive investment cycle In the longer term, foster private consumption through higher wages will be key to overcome deflation definitively Corporate profit (q/q) Bank lending (y/y) Wages and inflation Nominal wages (12m/12m) Inflation (12m/12m) f Sources: IHS, Euler Hermes Sources: national statistics, Euler Hermes 32

33 Emerging ASEAN: A broad based improvement Improved external demand provide a boost for exports. A positive rise in commodity prices strengthen prospects for commodity exporters USD denominated Export (3m rolling average y/y) Apart from Thailand (hampered by political uncertainties), domestic demand growth is well oriented underpinned by a positive rise in investment Real investment growth (y/y) 30% 20% Indonesia Malaysia Philippines Thailand Vietnam 20% 15% 10% Malaysia Thailand Indonesia Philippines (right axis) 30% 10% 5% 0% 0% 15% -5% -10% -10% -20% -15% -30% % % Sources: IHS, Euler Hermes Sources: IHS, Euler Hermes 33

34 Disclaimer These assessments are, as always, subject to the disclaimer provided below. Cautionary Note Regarding Forward-Looking Statements The statements contained herein may include statements of future expectations and other forward-looking statements that are based on management s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. In addition to statements which are forward-looking by reason of context, the words "may", "will", "should", "expects", "plans", "intends", "anticipates", "believes", "estimates", "predicts", "potential", or "continue" and similar expressions identify forward-looking statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (i) general economic conditions, including in particular economic conditions in the Euler Hermes Group s core business and core markets, (ii) performance of financial markets, including emerging markets, and including market volatility, liquidity and credit events (iii) the frequency and severity of insured loss events, including from natural catastrophes and including the development of loss expenses, (iv) persistency levels, (v) the extent of credit defaults, (vi) interest rate levels, (vii) currency exchange rates including the Euro/U.S. Dollar exchange rate, (viii) changing levels of competition, (ix) changes in laws and regulations, including monetary convergence and the European Monetary Union, (x) changes in the policies of central banks and/or foreign governments, (xi) the impact of acquisitions, including related integration issues, (xii) reorganization measures, and (xiii) general competitive factors, in each case on a local, regional, national and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. No duty to update. The company assumes no obligation to update any information contained herein. Copyright 34