D R L I M C H E E H A N M R T I M N I K L A S S C H O E P P M S O N G WO O I L E N G ECONOMIC S T U D I E S

Transcription

1 THE 2016 BUDGET AND ECONOMIC OUTLOOK 28 NOV 2015 D R L I M C H E E H A N M R T I M N I K L A S S C H O E P P M S O N G WO O I L E N G ECONOMIC S T U D I E S

2 Contents 1. General Information / Highlights of the 2016 Malaysian Budget 2. Global Challenges with effects on the Malaysian economy 3. Growth in Malaysia s and Penang s output 4. Factors contributing to the growth of Penang s GDP 5. Budget 2016 impact on households 2

3 5 Priorities of the 2016 Budget 1. Strengthening Economic Resilience 1. Increase Productivity, Innovation and Green Technology 2. Empowering Human Capital 3. Advancing Bumiputera Agenda 4. Easing the Cost of Living of the Rakyat 3

4 Highlights 2016 Budget Expected Revenue: Expected Expenditure: Expected shortfall: RM225.7 billion RM267.2 billion RM41.5 billion Expected budget deficit will marginally reduce to 3.1% of GDP in 2016 (compared to 3.2% in 2015) Economic growth expected to be 4-5% in

5 Highlights 2016 Budget Taxes: Income tax increased from 25% to 26% for people earning between RM600k and RM1 million and to 28% for those earning more then RM1 million GST increases government revenue by RM39 billion Subsidies and handouts: BR1M will be raised to RM5.9 billion (RM4.9 billion in 2015) Subsidies falling slightly to RM 26.1 billion (RM26.2 billion in 2015) Minimum wage: Increase from RM900 per month to RM1,000 per month in peninsula Malaysia and from RM800 per month to RM920 per month for Sabah, Sarawak and Labuan. 5

6 Highlights 2016 Budget Expenditure: RM41.3 billion to improve education RM17.1 billion allocated for the Ministry of Defence RM1.2 billion allocated for the tourism industry RM3.7 billion allocated for Majlis Amanah Rakyat RM30.1 billion for development projects 6

7 Highlights 2016 Budget Development: Affordable housing projects allocated RM1.6 billion (175,000 houses) RM900 million to resolve KL traffic congestion Telecommunications infrastructure allocated RM1.2 billion RM1.4 billion for development of rural roads nationwide (Pan-Borneo highway) RM5.3 billion to modernize agricultural sector RM515 to improve the electricity supply in Sabah 7

8 Highlights 2016 Budget Macroeconomic Highlights: Export forecast to rebound 1.4% in 2016 (after a 0.7% fall in 2015) Inflation 2-3% in 2016 (2-2.5% in 2015) Government debt limit to remain at 55% of GDP in 2016 (54% in 2015 and 52.7% in 2014) Oil and gas related revenues seen at 14.1% of total revenue (19.7% in 2015) 8

9 2. Global challenges with effects on the Malaysian economy Depreciating of the Malaysian Ringgit others Malaysia Slowdown of the Chinese economy Global Oil price development US interest rate hike 9

10 Exchange rate USDMYR Depreciating Malaysian Ringgit Average monthly Exchange rate USDMYR

11 Trade (US$ Mil.) Trade (US$ Mil.) Slowdown of Chinese economy Top 5 Export and Import Partners Malaysia (2014) Export Import Singapore China Japan United States Thailand China Singapore Japan United States Thailand Source: Worldbank,

12 Slowdown of Chinese economy Major export and import countries from/to Penang Major export countries from Penang January - November 2014 Major import countries to Penang January - November 2014 China 19.60% China 18.60% US 15.60% US 13% Euro Zone 11.60% Singapore 8.20% Hong Kong 10.60% Japan 7.80% Japan 6.50% Taiwan 6.20% Source: Department of Statistics,

13 Slowdown of Chinese economy Real GDP Growth and estimation (Annual percentage change) People's Republic of China 2 0 Source: International Monetary Fund,

14 20 Slowdown of Chinese economy Real GDP Growth and estimation (Annual percentage change) of selected countries and regions People's Republic of China Malaysia ASEAN-5 World Source: International Monetary Fonds,

15 US interest rate hike 15

16 US Dollars per Barrel Global oil price development Oil Price (UK Brent) Jan Nov 2015 US$ US$ US$ January-10 January-11 January-12 January-13 January-14 January-15 Source: IEA,

17 US Dollars per Barrel of Crude Oil Global oil price development 90 US$ Oil Price (UK Brent) Nov Nov US$ Source: IEA,

18 What does that mean for Malaysia? 18

19 Global oil price development Components of Contribution to the Malaysian Government 2016 * * Billion Malaysian Ringgit Dividends Taxes Cash payments Export duty Source: Petronas Annual Report 2014, *calculation bypi 19

20 Global oil price development Total Contribution - Petronas to the Malaysian Government : 33% of total revenue : 14% of total revenue estimation by PI 2016 estimation by PI Source: Petronas Annual Report 2014, *calculation bypi 20

21 3. Growth in Malaysia s and Penang s output 21

22 GDP annual growth in Malaysia and Penang % Growth rate 15.0% 10.0% 5.0% 10.8% 6.5% 5.6% 6.3% 4.8% 5.5% 10.4% 7.4% 5.2% 5.6% 7.4% 4.7% 6.0% 5.0% 3.9% 4.6% 6.2% 5.0% 0.0% -5.0% * -1.5% -10.0% -15.0% -10.5% Malaysia Penang Notes: The growth rates for are based on 2005 constant prices. While the growth rates for * are based on 2010 constant prices. *projection Source: Department of Statistics and the Eleventh Malaysia Plan

23 GDP growth by expenditure category in Malaysia, 2014 and 2015 (%, in 2010 prices) Expenditure e 2020 t Domestic demand a Private consumption Public consumption Investment Private investment Public investment External demand Exports of goods and services Imports of goods and services GDP a Domestic demand excludes gross fixed investment; e estimate; t target. Domestic demand continued to dominate the growth in GDP. Private consumption made up 79% of total domestic demand due to buoyant job creation, low unemployment rate and cash transfers. Source: Calculated based on the Eleventh Malaysia Plan

24 % contribution to GDP % share of expenditure components to GDP in Malaysia, t e 2020t Private consumption Public consumption Private investment Public investment Net exports Note: The percentage does not add up to 100% due to discrepancy found in the data. e estimate; t target. Increased private s role in development projects Narrowed net exports is estimated due to volatility in crude oil and LNG prices Source: Calculated based on the Eleventh Malaysia Plan

25 Projected Malaysia s and Penang s GDP in 2014 and 2015* (in 2010 prices) Malaysia Penang Sector % growth % share % growth % share * * * * Agriculture Mining & quarrying Construction Manufacturing Services GDP growth rate Notes: Numbers may not be necessarily add up due to rounding. *Projection Emerging economic activities in Penang s services sector: creative multimedia and global business services Source: Eleventh Malaysia Plan

26 4. Factors contributing to the growth of Penang s GDP 26

27 RM million Approved manufacturing investment in Penang (RM mil) 14, , , , , , , Jan-Sep Domestic 1, , , , , , , ,897.1 Foreign 3, , , , , , , , ,503.8 Total 4, , , , , , , , ,400.8 Domestic Foreign Total Electronics & electrical products contributed over 60% of total investment. US and Chinese companies were the major investors. Source: Malaysian Investment Development Authority (MIDA) 27

28 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 External trade in Penang 20,000.0 External trade (RM mil), Jan 2009-Jun ,000.0 H1 comparison for 2014 and 2015 (RM mil) 18, , , , , , , , , Balance of Trade (RHS) Export Import 6, , , , , , , , , , , , , , , , , , , , % +5.7% Jan-Jun 2014 Jan-Jun % Export Import Balance of Trade (RHS) Balance of trade stays surplus despite depreciation in Ringgit which does not play a factor in Penang s external demand. Source: Department of Statistics Malaysia Note: Captured at entry and exit points of seaport and airport. 28

29 Mix progress in Penang s international air cargo handled & sea gross registered tonnage H1 comparison Air cargo (million kg) % change Sea cargo (million tonne) % change Jan-Jun % Jan-Jun % Exported and imported goods could likely be transported in/out through vessel, hence maintaining surplus in trade. Penang contributed 23% of Malaysia surplus and ¼ of Malaysia export. In Malaysia s Sept 2015 monthly external trade statistics, E&E, timber and rubber products registered growth in exports. Therefore, positive growth is predicted. Source: Malaysia Airport Berhad and Penang Port Sdn. Bhd. 29

30 Major trade products at entry and exit points of seaport and airport MANUFACTURED GOODS 4.5% MISCELLANEOUS MANUFACTURED ARTICLES 16.2% CHEMICALS 3.3% FOOD 1.4% OTHERS 2.2% Total export (Jan-Jun 2015): RM 89.9 bil MACHINERY & TRANSPORT EQUIPMENT 72.4% MISCELLANEOU S MANUFACTURE D ARTICLES 6.7% MISCELLANEOU S TRANSACTION S AND COMMODITIES 4.5% CHEMICALS 5.6% MANUFACTURED GOODS 7.7% OTHERS 10.9% Total import (Jan-Jun 2015): RM 74.8 bil MACHINERY & TRANSPORT EQUIPMENT 64.5% Over 90% of Penang s commodities being exported comprise of E&E-related products, including electrical machinery, apparatus and appliances; professional and scientific instrument; and telecommunication, sound recording and apparatus. Likewise, Penang imported these products the most. Source: Department of Statistics Malaysia Note: Captured at entry and exit points of seaport and airport. 30

31 Favourable global demand for semiconductor components Book-to-bill ratio, Jan 2012-Sep 2015 Note: A ratio of above 1 signifies strong demand, while a ratio of below 1 signifies weak demand. In Sep 2015, the book-to-bill of 1.07 means that $107 worth of orders were received for every $100 of product billed for the month. Quick pick-up in global demand for semi gadgets Source: Semi, Sep

32 Number of Visitors Steady growth in tourism Total hotel guests grew by 45.6% with an increase of 56.4% in foreign guests in Visitors from Indonesia continued to be the largest share with 42.8% of the total international visitors from Jan- Sep ,000 70,000 65,000 60,000 55,000 50,000 45,000 40,000 International Visitors to Penang via Penang International Airport, Jan-Sep 2014 and 2015 JAN FEB MAR APR MAY JUN JUL AUG SEP Month Source: Penang Global Tourism 32

33 Q104 Q304 Q105 Q305 Q106 Q306 Q107 Q307 Q108 Q308 Q109 Q309 Q110 Q310 Q111 Q311 Q112 Q312 Q113 Q313 Q114 Q314 % Employment market stays robust Unemployment rate in Penang, Q Q Total employed persons: 819,600 (Q4 2014) Agriculture, forestry and fishing 2.7% Services 61.4% Mining and quarrying 0.1% Manufacturing 28.1% Construction 7.7% Achieved full employment level with its historic low unemployment rate of 1.2% in Q versus that of Malaysia, 2.9% Recorded higher labour force participation rate of 70.6% compared to that of Malaysia s 67.5% Source: Department of Statistics 33

34 5. Budget 2016 impact on households What does Budget 2016 mean to you and me? 34

35 Budget 2016: 1 st Budget under 11MP One of the aspirations : transform Malaysia into a high income advanced nation 35

36 % RM Household Economics- Household income (I) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 Household Income (Median) ,620 6,214 4,702 4,585 Malaysia Penang Selangor Kuala Lumpur Annual Average Growth Rate Source: Household Income And Basic Amenities Survey Report 2009, 2012, 2014, Department of Statistics Median Household income for Penang is above the national average Annual Average Growth Rate: Penang is slower than KL and the national average 36

37 RM Household Economics- Household income (II) 12,000 10,000 Household Income (Median) by income group 8.5% 11,610 8,000 6,000 4, % 5,465 T20 (top 20%) M40 (Middle 40%) B40 (Bottom 40%) 2, % 2, Source: Household Income And Basic Amenities Survey Report 2009, 2012, 2014, Department of Statistics Income growth rate for B40 is higher in 2014, but in absolute RM value, T20 makes more earning 37

38 Household Economics- Household Expenditure Education, 1.4% Recreation services and culture, 4.6% Miscellaneous goods and services, 8.7% Composition of household expenditure, Malaysia, 2009/10 Restaurants and hotels, 11% Communication, 5.6 % Transport, 14.9 % Food and nonalcoholic beverages, 20.3 % Housing, water, electricity, gas and other fuels, 22.6 % Alcoholic beverages and tobacco, 2.2 % Clothing and footwear, 3.4 % Inflation-adjusted Household expenditure 2014 (RM) Malaysia Peninsular Malaysia Average Urban Rural Source: Household Expenditure Survey Report 09/10, Department of Statistics and own calculation Health, 1.3% Furnishings, household equipment and routine household maintenance, 4.1% Bigger portion of household expenditure comes from food, housing and transportation Living cost in urban area is more expensive 38

39 % Household Debt 100 Household Debt in Malaysia (%GDP) Share of Household debt by monthly income group (%) Rapid rise in household debt in recent 5 years More portion of household income is servicing debt payment Source: Financial Stability and Payment Systems Report 2014, Bank Negara 26.7 RM940.4b >RM5000 RM <RM3000 Household Economics- Monthly Income <1000 (RM) 1,999 2, >5000 Debt Repayment Expenditure Savings Total Source: Department of Statistics and Bank Negara,

40 RM Household Economics- Household Disposable Income Average Monthly Disposable Income for Urban Households in Malaysia, Household Size T20 M40 B40 *Disposable Income = Monthly income (Monthly Expenditure + GST + Debt Repayment) A middle class family of 4 would find it difficult to save money for rainy days Low income urban families would be struggling to have any disposable income 40

41 Budget 2016 measures 41

42 Budget 2016 impact on households - Who gains and who loses? Bantuan Rakyat 1Malaysia (BR1M) (RM) Category Changes e-kasih Participants (monthly income <RM1,000) n/a 1000 Households (monthly income <RM3000) Households (monthly income RM ) Single Individuals (monthly income <RM2000, age Winner: B40 & some M40 households Source: Budget speech text, Ministry of Finance. 42

43 Budget 2016 impact on households - Who gains and who loses? Tax Relief (RM) Category Changes Each child below age Spouse who has no income Each Parent (monthly income <RM2000, > age 60) n/a Each child above age 18 (studying at local or foreign institutions of higher learning) Each disabled child above age 18 (studying at local or foreign institutions of higher learning) Tertiary Education (selected fields of study) or Master/Doctorate study Winner: M40, T20 & maybe some B40 households Source: Budget 2016, Ministry of Finance. 43

44 Budget 2016 impact on households - Who gains and who loses? Goods & Services Tax (GST) Government expectation of GST revenue collection: 2015: RM27bil 2016: RM39bil Consumer Price Index (CPI), 2015 More inflation-induced price hikes for consumer goods GST 44

45 Budget 2016 impact on households - Who gains and who loses? Goods & Services Tax (GST) Government expectation of GST revenue collection: 2015: RM27bil 2016: RM39bil More items are subject to GST at zero rate (GST 0%): 8,630 brands of medicine (up from 4,215) 6 food items (eg. Dhal, vegetables, infant milk, noodle products, sugar and spice) LOSER: All households, but M40 will get hit harder (without BR1M to cushion) 45

46 Budget 2016 impact on households - Who gains and who loses? Newly proposed tax structure Source: Budget 2016, Ministry of Finance. Government expectation of individual income tax revenue collection: 2015: RM28.15bil 2016: RM30.27bil LOSER: The richer quarter of T20 households 46

47 Summary The 2016 Budget tries to allay investors and credit agencies concern on Malaysia fiscal balances Significant move away from petroleum related revenue towards company income tax and GST Areas of concern: Debt amount and interest payments Budget 2016 is an austerity budget Malaysian households are expected to contribute more to national coffers (primarily through tax increases) to raise the national revenue next year 47

48 Summary US economy recovery translates to higher demand of electronics and electrical items. Hence it will largely benefit Penang s economy. Despite a slowdown in private consumption of 6.4% in Q compared to 8.8% in Q1 2015, flood relief efforts and front-loading of household spending prior to GST implementation temporarily change Malaysian spending patterns. Malaysia s private consumption remains stable. With the existence of high-end technology and high rates of techliteracy industries, Penang should leverage on Internet of Things (IoT). 48