Institue of Strategic and International Studies (ISIS) Malaysia.

Transcription

1 Institue of Strategic and International Studies (ISIS) Malaysia

2 MALAYSIAN RESPONSES TO THE GLOBAL ECONOMIC AND FINANCIAL CRISIS Mahani Zainal Abidin ISIS Malaysia 6 February 2009 Institue of Strategic and International Studies (ISIS) Malaysia

3 Global GDP Growth (%) (f) US EU Japan China India ASEAN World The world s major economies are in recession Source: IMF World Economic Outlook Database, Jan 2009

4 Export-led Implosion in East Asia Economies Asia will begin to feel the pain in 2009 from US real sector contraction G20 ministers forecast that global trade will contract in 2009, the first time since Countries with large export exposure are being the hardest hit. The Chinese fiscal stimulus of US$586bn Contraction of China s manufacturing sector is severe and unexpected Japanese corporate giants are experiencing losses Toyota, Sony Korea US$32bn stimulus including mitigating rising unemployment Singapore has revised downwards its 09 GDP forecast of 2% to -5% December Exports y-o-y (%) of Asian Countries Dec 2008 Japan China -2.8 S Korea Thailand Singapore Taiwan Malaysia -4.9 (Nov)

5 GDP Forecasts for Malaysia Real GDP (% pa) Previous Forecast Forecast for 2009 BNM 5-6% 3.5% MIER (15 Jan 2009) 3.4% 1.3% MARC (5 Jan 09) 3.5% 2.5% UBS (31 Dec 08) n.a. 0% RHB n.a. 1.5% CITIGROUP n.a 0.5%

6 External Trade External Trade (RM Million) % change mom Sep 2008 Oct 2008 Nov 2008 p Total Exports (4.5%) (-14.2%) (-3.1%) Total Imports (1.2%) (-7.8%) (-8.1%) Balance of Trade (16.9%) 9.62 (-34.7%) (19.5%) Source: Department of Statistics

7 Index of Industrial Production Index of % change mom Industrial Production (2000 = 100) Sept 2008 Oct 2008 Nov 2008 Overall Index Mining Manufacturing Electricity Source: Department of Statistics

8 Net Inflows of Short Term Capital RM million 1Q 2Q 3Q 4Q 1Q 2Q 3Q Net Inflows 26,299 14,881-22,075 4,285 3,840-30,318-38,054 International reserves of Bank Negara Malaysia fell to USD91.4 bn (RM330.4 bn) on 31 December 2008 compared with USD bn (RM410.9 bn) on 30 June 2008

9 MIER s Business Conditions Index falls 14.5 points to 99.6 points in 3Q 08

10 MIER s Consumer Sentiment Index rebounds to 88.9 points in 3Q 08 from historical low of 70.6 but below 100

11 Loan Applications Softening Actual gross loans in the banking system grew 11% yoy to RM723bil in November 2008 Banks expect average loan growth of 5% in 2009 Beginning August 08 monthly loan applications from the business and SME segment have been on a downtrend Business loans applications of RM17bn in November were 47% lower than the RM33bn in August. Over the same period, applications from SMEs declined by 29% from RM10bil to RM7bil (BNM s Monthly Statistical Bulletin, Nov 2008) YTD, consumer loans were up 9% The two key growth drivers - mortgages and motor HP are expected to fall in concert with the projected economic downturn

12 No asset deterioration yet Asset quality: the banking system continues to see lower absolute gross nonperforming loans (NPLs) - RM37bil in November 2008 (RM36bil: October) Net NPL ratio remained at an all-time low of 2.4% (November 2008) Asset quality preserved thanks to proactive measures taken by banks to restructure loans for borrowers that are experiencing stress

13 Rising unemployment but official data has not triggered the alarm bell Total retrenchments from 1 Oct 2008 to 22 Jan 2009 is 14,158 comprising largely local workers (10,636) while foreign workers number 3,522. (MOHR) The MOHR tends to view the situation as manageable because they are looking at 10,636 workers retrenched versus 16,600 vacancies available. Companies intending to retrench have to report to MOHR. So far the number to be retrenched in 2009 total another 13,084, the bulk of which will take place in Jan and Feb Retrenched Malaysians returning from Singapore currently reported at 30,000 but the number is expected to rise (340,000?) Unemployment New entrants to job market including graduates Foreign workers will they go back home?

14 Is Malaysia following the same path as other exporting countries? Surprisingly the impact of the global meltdown on Malaysia is mild (up to December 08) At the moment, the impact is not so serious but we can suddenly fall of the cliff as experienced by other countries 08 GDP growth is very likely to be more than 5% Government states that Malaysia is not going into a recession in 09 But 3.5% growth in 2009? The government still maintains its GDP growth forecast Banks are well capitalised Despite strong asset quality, the financial sector is not immune to a sharp contraction in the real sector as exports fall

15 Domestic Growth is the Priority Need to expand domestic demand Is the RM7bn stimulus package sufficient? how fast is the implementation? Is second stimulus package needed? What is the adequate size of the fiscal stimulus what kind of fiscal stimulus programs Is the fiscal deficit ceiling of 4.8% sacrosanct Private investment (Gross Fixed Capital Formation) as a % of GDP has deteriorated to 21.8% in 2007 compared to 30%-40% levels achieved in the 1990s SMEs access to loans and working capital Monthly loan applications from the business and SME segments continued on a downtrend beginning in August 2008 Business loans applications of RM17bn received in November were 47% lower than the RM33bn recorded in August. Over the same period, applications from SMEs declined by 29% from RM10bn to RM7bn. (BNM s Monthly Statistical Bulletin, Nov 2008) How much can consumer spending be increased? Inflation is no longer an issue? Inflation forecast for 2009: 3-4% But Malaysia is operating at a higher price level Need to Increase disposable income and consumer propensity to spend

16 Global Stimulus Packages (As % GDP) 1 st stimulus 2nd US 1.1% 6.0% EU 1.5% Japan 2.5% 5.8% China 18.0% S. Korea 1.1% 4.0% Singapore 8.5% Malaysia 1.1%

17 Additional Challenges Implications of plummeting oil and commodity prices on industry participants and on Government collections Sharply contracting export markets - diversification of export markets is not working Demand from non-core export markets (e.g. China, Korea and India) is softening What can be done to mitigate the fallout from the manufacturing sector Services exports: Malaysian construction companies overseas projects Capital flows, decreasing trade surplus and balance of payment Sharp decline in KLSE massive value impairment to companies and investors

18 Global Key Interest Rates (%) Before After US 16 Dec to 0.25 ECB 5 Dec UK 8 Jan Japan 19 Dec China (1-year lending rate) Malaysia (Overnight Policy rate) 23 Dec Jan

19 Response to crisis Budget 2009 Lower corporate tax rate by 1% to 25%. Increased tax rebate to RM400 (+14%) and lowered personal income tax by 1% for lower income groups Economic Stablisation Package RM7bn November 08 Construction and infrastructure projects RM3.5bn (low cost and public housings, schools, bridges and roads, upgrade police stations, army camps, repair public facilities) RM1.5bn investment fund to attract private investment into strategic sectors RM400m for broadband infrastructure RM500m for public transport Boosting private sector investments RM200m for micro credit for SMEs Allow foreigners to buy commercial properties above RM500,000 without FIC approval Liberalise services sector, ie allowing 70% foreign ownership by 2015

20 Response to crisis Employment and training: RM500m skills training (RM200m for government ministries) GLCs to train up to 12,000 graduates in 2 years for the job market. Government to accelerate the hiring of public sector employees in critical areas Boost consumer spending Voluntary reduction of EPF contribution from 11% to 8% Increase limit on civil servant car loans by RM10,000 across the board Extend government housing loan repayment period from years Tapping other sources of government revenue Monetising of government assets, such as land Institute of Strategic and International Studies (ISIS) Malaysia

21 Direction for second stimulus package 3 areas that should be tackled by stimulus package Issues Declining export demand, keeping business afloat, rising unemployment Size of the package financing the deficit because it is likely to exceed the ceiling of 4.8%. Relax ceiling for one of two years. Use of reserves and mobilisation of other savings Programmes contained in the package large multiplier effects Consumer demand and spending Increasing disposable income and sustaining consumer spending lowering income tax Infrastructure projects have multiplier effects Lower charges for credit cards.

22 Proposals for second package Addressing rising unemployment Encourage the private sector to maintain or increase employment tax incentives for retention of workers through reduced corporate tax rates or tax holidays. Additional benefits can also be given for job creation and retraining of workers Training for retrenched workers Helping business to stay afloat businesses and consumers have access to financing at all times lowering business cost e.g. energy and electricity costs, expanding access to capital and less regulations Tax measures

23 Direction for second package Is lowering interest rate an effective response or are we going into a liquidity trap? But the main worry is if the global crisis is a long one how long can we sustain domestic growth: Level of consumption Government resources THANK YOU