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GROUP

MALAYSIA A  Macroeconomic   MALAYSIA Report   09


COUNTRY PROFILE

SPAIN


COUNTRY PROFILE

SPAIN

MALAYSIA


TIMELINE OF EVENTS 18th – 19th Century 1946-48

Great Britain established colonies and protectorates in the area of current Malaysia

11 states formed a single British crown colony – Malayan Union

1948

Due to opposition from Malay nationals, union disbanded. Federation of Malay formed

1963

Singapore, Sarawak and Sabah join the federation. Federation of Malaysia is born

1965

Singapore withdraws from the Federation

2009 onwards

PM Najib Razak introduces civil reforms and pro-business policies

1957

The Federation of Malaya granted independence within the British commonwealth

1981-2003

22 year regime of PM Mahathir bin Mohammad successful in diversifying the economy gradually


TIMELINE OF EVENTS

ASIAN CRISIS 1997-98

COMMODITY SHOCK 1985-86

CONTEXT

Sudden shifts in market expectations and confidence as well as structural and policy distortions in countries of the region led the turmoil

Collapse of the world commodity trade triggered by high interest rates in the US

GLOBAL CRISIS 2008-09

Bursting of the speculative bubble in US housing market in 2008

EFFECTS ON MALAYSIAN ECONOMY

1. 30% decline in exports 2. Debt/GDP at 103.4% 3. Contraction in economy

1. 50% depreciation in MYR 2. US$11 billion –ve capital flow 3. Wipe-off of US$ 225bn of share values

1. Fall in KLSE 2. Exodus of US$6bn of capital 3. Decline in merchandise & manufacturing exports

• Strict Capital controls • Fixing of MYR to USD • Recovery packages to boost economy

• Central Bank lowered OLR • SRR also reduced • Interest Rate cuts • FX Loans to exporters • 2 stimulus packages

RECOVERY STEPS • Obtained some IMF support • Adopted contractionary Fiscal Policy • Exchange Rate devolution • Privatization


BAHASA MELAYU

ENGLISH

29 628 392 Population Growth

20.27 per 1000

BIRTH RATE

Age Groups

4.66

per 1000

2.3

per woman

93.1%

1.03 males per female

TOTAL

DEATH RATE FERTILITY RATE LITERACY RATE

Ethnic Groups 0- 14 years

Malay

15 - 24 years 25 - 54 years 55 - 64 years

Chinese Indigenous Indian Others

SEX RATIO

1US$ = 3.17 MYR

71% Â population is urbanized


UNEMPLOYMENT 29.4M TOTAL POPULATION

LFPR increased from 65.1% to 69.6% in 2013 and total number of working adults reached 14.24 million | More males than females

14.24M INSIDE LABOUR FORCE

Minimum wages MYR 900/ month. Variations in salaries according to gender, age, geography and sector of occupation

13.8M EMPLOYED

6.2M OUTSIDE LABOUR FORCE

443.2 UNEMPLOYED

Based on data from Department of Statistics, Malaysia (September 2013)

1

2

3

4

Unemployment stable and low since 2000. In September 2013, unemployment à 3.2%

Okun’s Law of negative relationship between unemployment rate and real GDP can be applied to explain the Malaysian condition Source: The Relationship Between Output And Unemployment In Malaysia: Does Okun’s Law Exist?


GDP GROWTH & OUTPUT GAP Good performer in Southeast Asia region as evidence by continued GDP   growth

12.00%

GDP Growth Rate %

10.00% 8.00% 6.00% 4.00% 2.00%

Susceptible to global volatility showed by 3 dips in 1998, 2001, and 2008

Output gap close to 0 from 2011, stable price and inflation

3 large output gaps in 1998, 2001, and 2008 as a result of past financial crises

0.00% -2.00% -4.00% -6.00% -8.00% -10.00%

1995! 1996! 1997! 1998! 1999! 2000! 2001! 2002! 2003! 2004! 2005! 2006! 2007! 2008! 2009! 2010! 2011! 2012! 2013!


DEMAND SIDE Economic Activity % Share to GDP 100% 90% 80%

46.8

47.5

49.2

50.9

3.0

2.8

2.9

2.8

70%

53.2

53.2

54.1

54.6

3.1

3.2

3.2

3.5

26.1

24.2

25.2

25.1

24.9

60% 50% 40%

27.5

28.0

30%

27.2

20% 13.3

12.4

11.9

11.1

10.5

9.8

8.8

8.4

8.3

8.3

7.9

7.8

7.9

7.6

7.6

7.3

2005

2006

2007

2008

2009

2010

2011

2012

10% 0%

Agriculture

Mining and quarrying

Manufacturing

Construction

Services

§  Service (51%) and Manufacturing (26%) are two main GDP drivers

§  Shift from heavy industry to service industry from 2009 due to ETP


SUPPLY SIDE Expenditure % Share to GDP

100% 80% 60% 40% 20% 0% 2005

2006

2007

2008

2009

2010

2011

2012

-20%

Private final consumption expenditure

Government final consumption expenditure

Changes in inventories and valuables*

Balance of goods and services

Gross fixed capital formation

§  Private consumption & Investment are large components and contribution to GDP are growing because of increasing income, better employment, access to credit, and better wealth

§  Net export decreased 10% during the period from 2007 to 2012 due to declined external demand


Source: Nielsen Global Survey of Consumer Confidence, Q3 2013!

CONSUMER CONFIDENCE INDEX


Source: Nielsen Global Survey of Consumer Confidence, Q3 2013!

CONSUMER CONFIDENCE INDEX

In Q3-2013, Malaysia reported a high consumer confidence index of 101 at par with other countries like India, Brazil and China. Although the confidence declined by 2 points compared to Q2-2013, Malaysia still ranked among the most optimistic countries in the world. This implies that Malaysians are fairly optimistic about their spending activities, thus hinting at higher consumption which in turn may fuel economic growth


INCOME INEQUALITY AND GDP LIMITATIONS Income distribution in Malaysia is more skewed and uneven than in peer nations. Large income gap exists between urban & rural area and among states

GDP although gives us idea about the country’s wealth, it is not a good measure of welfare and income distribution

HDI provides insights on human development including income, health, and education. Malaysia ranks #64 in the world and above the Asian average

HUMAN DEVELOPMENT INDEX


INFLATION Two inflation peaks in 1998 and 2008 mirror past financial crises

CPI Growth Rate % 6.00%

5.00%

4.00%

CPI price fixed basket: 30% food & nonalcoholic beverages and 70% non-food mainly including housing, water, electricity, gas & other Fuels and transport

3.00% 2.00% 1.00% 0.00%

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Inflation in Malaysia 1,40,000

GDP deflator basket not fixed (- non-resident purchase, + government consumption such as defense, health, and education)

1,20,000 1,00,000 80,000 60,000 40,000 20,000 0 95

96

97 98

99 00

01 02 03

INFLATION Consumer Price Index Index

04 05

06

07 08

09 10

11 12 13

INFLATION GDP Deflator Index


GOVERNMENT INCOME & EXPENDITURE

Government has a target deficit of 5% and this has been and is expected to be maintained.

Malaysia Fiscal Performance 40%

300 200

30%

100 - (100)

20% 2005

2006

2007

2008

2009

2010

2011

2012

(200)

10%

% GDP

MYR Billions

Consistent budget deficit averaging 2.91% up to 2007. Accelerated in 2008/9 to 4.3% & 7% to offset effects of recession

0%

(300) (400)

-10% Revenue

Expenses

Deficit / GDP

Revenue / GDP

Source: IMF World Economic Outlook Database 2013

Composition of Income & Expenditure

Taxes form 73% of income followed by non tax revenues

Recurrent expenditure is largest component of expenditure → most ETP project done by private sector

2010

0.26%

0.27%

0.28%

33.21% 19.08%

28.98% 17.85%

25.76% 17.21%

46.97%

52.60%

56.37%

-61.87% -38.13%

Development Expenditure Non Revenue Receipts Direct Taxes

2011

-65.95% -34.05%

Recurrent Expenditure Non Tax Revenues

2012

-57.73% -42.27%

Federal Territories Revenues Indirect Taxes

Source: IMF World Economic Outlook 2013 (MYR #s) and the Malaysia Ministry of Finance for composition


GOVERNMENT DEBT Debt / GDP 60.0% 50.0%

42.1%

40.6%

40.1%

39.8%

2005

2006

2007

2008

40.0%

50.8%

51.2%

51.8%

53.5%

2009

2010

2011

2012

30.0% 20.0% 10.0% - (Source: MF World Economic Outlook Database 2013, Ministry of Finance and Malaysia 2014 Budget Speech, November 2014)

§  On the back of consistent deficits, the Malaysian Government has borrowed in order to fund its activities. §  The Debt / GDP ratio of Malaysia is targeted to remain ≤55% of GDP. This target has been consistently met and there are expectations by the Ministry of Finance that it will continue to be met. §  The solvency of Malaysia is not in question as it had, on the 30th of September 2013, USD135.6 billion as reserves which equated to 4x its short term debt obligations.


INTEREST RATES & MONETARY SUPPLY

Evolution in line with expectations, changes in 2009 were in response to recession

8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 -

2005 BLR  

2006 2007   OPR  

Bank Negara Malaysia Annual Reports 2007 – 2012

Loans to private sector increased to ensure implementation of ETP with private leading

Money Supply

M3 in Millions

Consistent growth in M3. Spikes in 2008 and 2011 in response to recession and ETP

2008 2009   2010   2011   2012   Gvt  Bond  (5  yr)   T.  Bills  (90  day)  

16,00,000 14,00,000 12,00,000 10,00,000 8,00,000 6,00,000 4,00,000 2,00,000 0

16% 14% 12% 10% 8% 6% 4% 2% 0%

Growth in M3 & Loans

Interest Rate Evolution

Interest Rate

Overnight Policy Rate is the key rate in the economy, set by the MPC. Rest are market determined

2005 2006 2007 2008 2009 2010 2011 2012 Money Supply

Growth in Money Supply

Bank Negara Malaysia Annual Reports 2007 – 2012

Growth in Bank Loans


INFLATION AND EXCHANGE RATE

6.00%

Inflation in Malaysia is a direct result of the MP direction as it mirrors growth in money supply and interest rate levels

5.00% 4.00% 3.00% 2.00% 1.00% - 2005

2006

2007

2008

2009

2010

2011

2012

Inflation (CPI Change)

Malaysia has followed a free floating exchange rate since 2008

Movements in exchange rate mirror monetary development and inflation levels

Ave. RoE

4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 -

10% 8% 6% 4% 2% - -2% -4% -6% -8% 2005

2006

2007

2008

Ave. Exchange  Rate  (USD:MYR)  

2009

2010

2011

2012

Change in  Ave.  RoE  

% Change in RoE

USD/MYR Exchange Rate

(Source: IMF World Economic Outlook Database 2013)

Inflation Evolution

Rate of Inflation

Malaysia has historically enjoyed stable inflation and this remain the case


TRADE BALANCE Malaysia Trade Balance 2008-2012 8,00,000.0 7,00,000.0 000` MYR

6,00,000.0 5,00,000.0 4,00,000.0

Exports

3,00,000.0

Imports

2,00,000.0 1,00,000.0 0.0 2008

2009

2010

2011

2012

Bank Negara Malaysia Annual Reports 2008 – 2012

§  Malaysia’s exports exceed its imports by approximately 20% during 2008-12 thus indicating a consistent trade surplus §  Although export-oriented economy, the country has learnt its lessons from the past shocks and diversified into manufacturing and services §  Malaysia`s exports at end of 2012 totaled 702,188 million Malaysian Ringgit (218,887 million U.S. Dollars)


TRADE BALANCE

Singapore is Malaysia`s major export partner Most imports are also in the machinery and transport category (47% of total imports). Manufactured goods come in at13%.

Singapore and China are Malaysia’s main import partners.

Crude materials 3%

Chemical products 6% Animal and vegetetable oil 9% Manufactured goods 9%

Misc. manufactured 9%

Food 3% Source: Malaysia Bank of Negara

Malaysia Exports 2008-2012

Machinery and transport 42% Mineral fuels, lubricants 18%

Malaysia Imports 2008-2012 Crude materials Food 4% 6% Misc. Manufactured 6% Chemical products 9% Mineral fuels, lubricants 11% Manufactured goods 13%

Machinery and transport 47%

Source: Malaysia Bank of Negara

Malaysia’s main exports are in the machinery and transport category (42% of total exports). Mineral fuels and lubricants make up 18% of total exports


Net FDI investment into Malaysia were concentrated in Manufacturing (42% of total FDI flow) and Mining and quarrying, including oil and gas (31% of total FDI)

NET FOREIGN DIRECT INVESTMENT (by sector) Other services 4% Wholesale and Retail Financial & 7% Insurance 13%

I&T Agriculture 1% 2%

Manufacturing 42%

Greatest investors in Malaysia are Singapore and Japan; together they account for 52% of total FDI that comes into Malaysia

Recently, the Netherlands has increased its FDI in Malaysia because of investments in financial and insurance sectors.

Mining (including oil and gas) 31%

NET FOREIGN DIRECT INVESTMENT (by country) Luxembourg Bermuda Hong Kong 4% 4% United Kingdom 4% Germany 5% Virgin Islands (British) Switzerland 5% 7% Australia 7% Netherlands 9%

3%

Japan 26% Singapore 26%

Source: Malaysia Bank of Negara

Source: Malaysia Bank of Negara

FOREIGN DIRECT INVESTMENT


NET FLOWS OF FOREIGN DIRECT INVESTMENT (FDI) Million MYR

Net flows of Foreign Direct investment have increased by 30% since 2008

40,000!

30,000! 20,000!

At the end of 2012, FDI was at 31,117 Million Malaysian Ringgit (US$ 9,700 million)

The country has been running a current account surplus since 1999. Consequently, the nation is a net creditor, or lender

Current Account as of today (Q3-2013) is MYR 9,842 million

10,000! 0!

2008

2009

2010

2011

2012

NET FLOWS OF FOREIGN DIRECT INVESTMENT (FDI) Million MR

Source: Malaysia Bank of Negara

FOREIGN DIRECT INVESTMENT


REGULATORY & POLITICAL CLIMATE

OPPORTUNITIES

EASY TO DO BUSINESS

Ranked 6th by World Bank – IFC in Doing Business 2014 Report

FAVOURABLE TAX REGIME Corporate Tax Rate is 24.5% and is lower than India, Brazil, Indonesia & Philippines

POLITICAL STABILITY Pro-development, liberal regime, offering efficient public services and investor protection, is in power since 2009

THREATS

CORRUPTION Ranked 54th on Corruption Perception Index

INEFFICIENT JUDICIARY Judiciary is not free from political influence and often inefficient in delivering justice

PROTECTIONIST POLICIES Government policies are Bumiputra oriented


MALAYSIA IN COMPARISON Although GDP and GDP growth is not as large, GDP per capita is far greater among the rest of neighbors

Malaysia also has the lowest unemployment rates, lowest inflation rates and consumer price indexes than all BRIC countries.

Malaysia is holding a greater Current Account balance than the BRIC nations, thus consolidating Malaysia position as a strong creditor nation

Malaysia’s overall risk rating is better than all its neighbours and BRIC nations save for China

Geographic Neighbors (in 2013) Macro Indicators

Malaysia

Indonesia

Thailand

Philippines

Vietnam

GDP (Last) USD BILLION

303.53

878.04

365.56

250.27

141.67

GDP per capita (USD)

6764.51

1731.65

3350.78

1501.83

931.03

GDP growth rate %

5.6

6.2

6.5

6.8

5

Unemployment rate %

3.2

6.25

0.67

7.3

2.22

Inflation rate %

2.8

8.37

1.92

3.3

5.78

18638

-­‐24074

2759

7126

9062

A-

BB+

BBB+

BBB-

BB-

25

88

52

101

73

Current Account USD Million (end 2012) S&P Risk Rating KOF Index of Economic Globalization Ranking

Source: World Bank Data, www.tradingeconomics.com BRIC (in 2013) Macro Indicators

Malaysia

Brazil

Russia

India

China

GDP (Last) USD BILLION

303.53

2435.2

2014.8

1841.7

8230

GDP per capita (USD)

6764.51

5721.23

6834

1106.8

3348

GDP growth rate %

5.6

0.9

3.4

3.2

7.8

Unemployment rate %

3.2

5.2

5.5

3.8

4

Inflation rate %

2.8

5.77

6.5

7

3.2

18638

-54246

71432

-60038

193139

A-

BBB

BBB

BBB-

AA-

25

104

97

128

109

Current Account USD Million (end 2012) S&P Risk Rating KOF Index of Economic Globalization Ranking

Source: World Bank Data, www.tradingeconomics.com


VIDEO

hQp://www.youtube.com/watch?v=rcBb8tSZZnY  

Investment Country Profile: Malaysia  

Concept and Design by Kartik Shah

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