November THE WORLD BANK

Transcription

1 Malaysia Economic Monitor Inclusive Growth November 21 THE WORLD BANK

2 How is the economy performing post-recovery? - In spite of a spectacular year-on-year recovery, the pace of growth started to slow early 21 - The rebound transitioned into more normal patterns of growth, with private domestic demand playing again a greater role - The return of external weakness is now interrupting this process, eroding underlying momentum once again 2

3 What is the outlook for growth? Near-term growth is expected to soften further, with the global economy as a key source of uncertainty Malaysia s high-income economy ambition will require a significant rise in average growth over the medium term - The Economic Transformation Programme s dual focus on policies and projects provides an excellent platform - Progress on cross-cutting bottlenecks will be essential to sustain growth beyond a temporary acceleration - Conditional upon the multi-year commitment to consistent implementation, Vision 22 should be within reach 3

4 How can Malaysia meet its aspiration of inclusive growth? - Malaysia has made great strides in reducing poverty and inequality - But significant challenges remain - Deep pockets of poverty persist - Inequality has leveled out at high levels - Fully meeting the aspiration of inclusive growth will require: - Expand access to income-earning opportunities - Improve human capital to take advantage of these opportunities - Enhance social protection mechanisms 4

5 How is the economy performing post-recovery?

6 The Malaysian economy saw a spectacular year-on-year recovery Real GDP growth, year on year Q1 7 Q3 7 Q1 8 Q3 8 Q1 9 Q3 9 Q1 1 Source: CEIC and World Bank staff calculations, as in all other charts except when mentioned 6

7 Output levels are now well above pre-crisis peaks... Current output level compared to pre-crisis peak (seasonally adjusted) SGP 12.8 KOR 4.8 MYS 4.7 TWN 4. THA 3.8 HKG Source: Haver and World Bank staff calculations RECENT ECONOMIC DEVELOPMENTS

8 ... but the impact of the crisis remains Actual and simulated GDP levels (seasonally adjusted), Q1 28= No crisis Actual Q1 Q2 Q3 Q4 8 Q1 Q2 Q3 Q4 9 Q1 Q2 Q3 Q4 1 Q1 Note: No-crisis scenario assumes quarterly growth at averages of Source: Haver and World Bank staff calculations Q2 8

9 and the pace of quarterly growth is slowing Real GDP growth, quarter-on-quarter, seasonally adjusted, percent Q1 7 Q3 7 Q1 8 Q3 8 Q1 9 Q3 9 Q1 1 9

10 Just as growth patterns were getting back to normal, external conditions weakened again Percentage point contribution to quarter-on-quarter GDP growth, sa Private consumption Public consumption Fixed investment Inventory investment Net exports 26Q2 Q3 Q427Q2 Q3 Q428Q2 Q3 Q429Q2 Q3 Q421Q2 Q1 Q1 Q1 Q1 Q1 1

11 Normalization was evident in capacity utilization returning to typical levels... Industry capacity utilization rate, percent Export oriented Domestic oriented 5 Mar-7 Mar-8 Mar-9 Mar-1 11

12 ... inflation edging up, though less than in other countries Inflation, percent change, year-on-year Malaysia Philippines Thailand Indonesia Jan-7 Jan-8 Jan-9 Jan-1 12

13 ... labor markets recovering further, though the impact of the crisis remains evident Workers in manufacturing, thousands 6 55 Export oriented Domestic oriented 35 Jan 8 Jun 8 Nov 8 Apr 9 Sep 9 Feb 1 13

14 ... investment flows strengthening, with the financial account back to surplus Financial account, RM billion 6, 4, FDI outflow Portfolio, net Financial Account FDI inflow Other, net 2, -2, -4, -6, -8, -1, 27 Q1 Q2 Q3 Q4 28 Q1 Q2 Q3 Q4 29 Q1 Q2 Q3 Q4 21 Q1 Q2 14

15 f... and monetary and fiscal policy settings normalizing Percent Percent of GDP 7 6 Lending Rate: Commercial Banks Overall Surplus (left) Net Development Exp. (left) Current Revenue (right) Current expenditure (right) Overnight Policy Rate (Month-end) Savings Rate: Commercial Banks Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Source: Ministry of Finance Economic Report 21/11 15

16 Interrupting these developments was the return of external weakness... Nominal export levels, rebased to June 28 = 1, seasonally adjusted Growth in industrial production, percent Month-on-month Year-on-year 6 Jan-8 Aug-8 Mar-9 Oct-9 May-1-2 Jan-7 Jan-8 Jan-9 Jan-1 16

17 ... against the backdrop of an uneven, incomplete and slowing global recovery Industrial production (seasonally adjusted), rebased to 1 in Jan China Developing High-income OECD 7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 17

18 What is the outlook for growth? ECONOMIC OUTLOOK

19 Leading indicators suggest that further weakening is in the pipeline OECD Composite Leading Indicator seasonally adjusted (1=long-term average) 15 Growth month-on-month (3 month moving average seasonally adjusted), percent Malaysia Leading Index Euro area (16 countries) Japan United States China Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul US Manufacturing IT New Orders Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 19

20 Growth is expected to soften further Real GDP year-on-year growth, actual and forecast, percent f 211f 212f 2

21 ... with domestic demand a driver and external demand a drag Actual and forecast contributions to GDP growth, yoy, percent Private consumption Public consumption Public investment Private investment Change in stocks Net external demand GDP f 211f 212f 21

22 and public demand gradually loosing prominence Federal government balance, percent of GDP f 211f 212f 22

23 Progress on fiscal consolidation will require measures to broaden the revenue base GST rate at introduction, percent Note: The date on which a GST was/will be introduced is in parenthesis next to each country label. Source: KPMG (21). 23

24 Vision 22 is within reach, providing the ETP is carefully implemented Contributions to average annual GDP growth, percentage points Labor Capital TFP 8th Malaysia Plan 9th Malaysia Plan 1th Malaysia Plan Note: * estimate, ** target. TFP is total factor productivity. Source: Economic Planning Unit (1MP report). 24

25 Improving the enabling environment will be key to sustain growth beyond a temporary uptick Days Singapore UK US Malaysia Deal with Construction Permits 15 Enforce Contracts Close a Business Source: World Bank Doing Business

26 How can Malaysia meet its aspiration of inclusive growth?

27 Num of poor HHs Poverty rate Poverty has declined in the last decades but deep pockets remain No. poor households (left axis) Poverty incidence (right axis) 6% 5% 4% 3% 2% 1% % Sabah Sarawak Kedah Perak Kelantan Johor Terengganu Selangor Pahang P.Pinang Perlis W.P.KL N.Sembilan Melaka W.P. Labuan W.P Putrajaya Population distribution Where are the poor Source: DOS, EPU, and World Bank staff calculations. 27

28 Gini and income inequality persists at high levels Brazil (27) Chile (26) Argentina (26).55.5 Malaysia (27) Philippines (26) Thailand (24) China (25) Sri Lanka (22) Vietnam (26) Indonesia (27) India (25) Pakistan (25) Source: EPU Malaysia Urban Rural 28

29 To foster inclusive growth Expand access to income-earning opportunities Improve human capital to take advantage of those opportunities Enhance social protection mechanisms 29

30 Fostering greater access to earning opportunities through higher labor mobility Diversity in wage levels in construction and manufacturing W P Putrajaya W P Kuala Lumpur Selangor Kelantan Perlis Terengganu Overall Negeri Sembilan Johor Pulau Pinang Sarawak Pahang Perak Kedah Melaka Sabah W P Labuan RM 6 RM 7 RM 8 RM 9 Migration Rate (Left Axis) Migration Share (Right Axis) % 1% 2% 3% 4% 5% Source: World Bank staff calculations; Enterprise Surveys 3

31 and through regulatory changes for more dynamic business environment and labor market Economic freedom: =worst 1 =best 1 Business Regulations and Costs Labor Regulations and Costs Business regulations Bureaucracy costs Price controls Licensing restrictions Extra payments/bribes All Labor Market Regulations Hiring and Firing regulations Centralized collective bargaining Mandated cost of worker dismissal Source: Economic Freedom Index,

32 2. Improving human capital starts by reducing educational disparities in basic education Scores in Mathematics of all14 years olds, in percent Above 625 From 55 to 625 From 475 to 55 From 4 to 475 Below Share of 14 years old with math score below 4, in percent WP Kuala Lumpur Terengganu Selangor Sarawak Sabah Pulau Pinang Perlis Perak Pahang Negeri Sembilan Melaka Kelantan Kedah Johor Source: TIMSS, 27 Urban Rural Urban Rural 32

33 and promoting participation in higher education and vocational training by addressing quality and relevance 1 Share of students in education category, in percent Tertiary Post sec Upp sec Low sec Primary None Rep Korea, 27 Singapore 27 Source: Department of Statistics, and BCG 29, and UNESCO 33

34 Subsidies Social 3. Making social protection more effective and efficient Percentage of GDP spent for each category Assistance Other Incentives Other welfare assistance Education Other subsidy Scheme for Cooking Oil Price Stabilization Food subsidy (paddy, rice, sugar, and flour) Subsidy on interest rate differentials and electricity LPG, Diesel, Petrol Source: Ministry of Finance, 21 34

35 by improving targeting methods and approach Share of households per income quintile receiving social assistance, in percent Q1 Q2 Q3 Q4 Q5 All social assistance Income from education (e.g. scholarship, fellowship) received Income from social assistance received Source: World Bank staff calculations; HIS. Share of benefits received by the poorest quintile, in percent Argentina Macedonia Brazil Mexico Hungary Bangladesh Peru Ecuador Armenia Georgia Colombia Indonesia Vietnam Chile Guatemala Ukraine Malaysia Egypt Belarus Jordan Venezuela Morocco Bolivia Pakistan

36 Active Coverage (% Labor Force) and going from programs to coordinated systems to ensure comprehensive coverage 1% 8% Share of labor force participating in the pension system United Kingdom Australia United States 6% 4% Brazil Malaysia Mexico 2% India China % 5, 1, 15, 2, 25, 3, 35, 4, 45, GDP, PPP Source: World Bank staff calculations. 36

37 Key Recommendations Expanding access to economic opportunities Increase labor mobility by reducing job-search costs and providing better labor market information and employment services Increase market competition, and reducing the administrative and regulatory burden for firms Ease rigidities in labor regulation Investing in human capital Improve the quality of basic education in underserved areas Strengthen employer and industry-led skills development Further unify the structure of TVET system Enhancing social protection mechanisms Establish a clear and consistent poverty focus of the social safety net programs Refine targeting mechanisms Move from many fragment programs to a coordinated social protection system, including social insurance mechnisms with broad coverage and effective risk pooling mechanisms 37

38 How to obtain the report? Thank you