MALAYSIAN ECONOMIC OUTLOOK


Executive Summary



The global economy is on the recovery path after bottoming out last year. Better-than-expected performance in major economies, particularly the United States, China, Japan and euro area, and the recovery of larger emerging and low income economies as commodities prices improved provided the impetus for global growth. A balanced policy mix, fiscal stimulus for infrastructure development as well as for defence and security expenses and gradual monetary normalization, provide a positive growth environment for the US although it is weighed down by uncertainties in the Trump administration. Fiscal stimulus in China and accommodative monetary policy in euro area and Japan further boosted global demand.



Demand from commodity-exporting economies rebounded as prices for c vmajor commodities continue to improve. Crude oil prices stabilized above US$50 per barrel, although the tug-of-war on production between OPEC and US unconventional oil producers persists. OPEC together with a few major non-OPEC bigger producers have agreed on production quota and therefore effectively exert an upward pressure on prices. On the hand, better prices coupled with an improved in production efficiency among American shale oil producers as well as higher production from other small oil producing countries to boost up revenues and consequently pressuring the prices downwards. Prices are expected to average at US$55 per barrel for this year given the current supply condition on the back of a better expected global demand.

Prices for major agriculture commodities are improving with the exception of grains, particularly wheat, maize and rice. Grains prices are expected to decline due to bounty crops in Europe, North America and Central Asia following favourable weather conditions. Oils and meals prices, on the other hand, are expected to rise by 3.0%. Palm oil yields are anticipated to be lower due to adverse weather conditions, particularly in East Asia caused by El Nino. Supply is expected to continue to fall short of demand, pushing up prices of oilseeds and vegetable oils in 2017. Prices for agriculture raw materials components including rubber are expected to rise by 2.0%, among others due to a pickup in demand as most economies are improving.

Faster growth among major developed and larger emerging and low income economies outweigh slower growth of some larger economies like India, Brazil, Mexico, Argentina and Turkey. Global demand is expected to improve. Meanwhile the IMF projected that world trade volume for this year to grow stronger at 3.8% and further improve to 4.1% next year as compared to a slower growth of 1.9% last year. Nevertheless, political and policy uncertainties among major economies and pockets of geopolitical conflicts here and there are potential headwinds to the global growth. The rise of protectionism among some major developed economies will hamper on trade and immigration flows and this in turn will have implication on production and income growth for some major economies. Protectionism policy will also invite retaliation from other countries. All in all, Malaysia is expected to benefit from stronger demand from major trading partners.

As external demand strengthened, exports of goods and services for this year is expected to grow at 1.8% per annum, an upward revision of 0.5 percentage point from our earlier forecast. Nevertheless, growth in imports is maintained at 1.5%. Consequently, net exports of goods and services is expected to grow at 4.1%. MIER's first quarter 2017 survey on business sentiments (Business Conditions Index - BCI) revealed that businesses are particularly buoyant about external demand as both sub-indices for new export orders and expected export sales increased by 72.3% and 100.0%, respectively as compared to the previous quarter. On a y-o-y basis, new export orders increased by 138.0% and expected export sales increased by 100.0%. This sentiment also concurs with the first quarter 2017 Vistage-MIER CEO Confidence Index in which CEOs are generally hopeful for the short-term prospects for their firms as indices for expected employment, revenue, profit and fixed investment surged as compared to the previous quarter as well as against the same quarter a year ago.

Domestic demand contributed to 91.6% of real GDP for 2015 and 91.8% for 2016 and the trend is expected to continue for the next two years. Therefore, the growth in domestic demand is the main source of GDP growth. For 2016, 4.0 percentage points of the 4.2% GDP growth, or about 95%, was contributed by domestic demand and a similar trend is expected for 2017. The growth in domestic demand in 2016 was slower at 4.4%, the lowest since 2008/2009 world financial crisis. The growth in domestic demand is expected to marginally improve to 4.5% for this year and rebound slightly to 4.9% in 2018.

Growth in domestic demand for this year is supported by robust growth in private expenditures. Private consumption is projected to grow at 5.8%, a bit slower than last year's growth of 6.1% as consumers are more cautious on the back of rising household debt and prices. This is notwithstanding an improvement in consumer confidence level as reflected in MIER's latest survey on consumer confidence, the first quarter 2017 Consumer Sentiments Index (CSI). The CSI bottomed out in the fourth quarter of 2016 but consumer confidence remains weak as CSI continues to be below the demarcation level of 100 points. However, consumer confidence level is improving as the first quarter 2017, the CSI rebounded to 76.6 points as compared to 69.8 points in the previous quarter, and still above the same quarter of last year (1Q2016: 72.9 points). It shows that in general consumers are more optimistic about the economy. As their confidence level is improving, consumers indicated cautiously ambitious spending plans.

An upward pressure on prices poses a setback to consumption growth. Higher crude oil prices and a depreciated ringgit will contribute towards a higher cost-push inflation expectation. Headline consumer inflation for this year is projected to be 3.0%, a 0.5 percentage point revision from January's forecast, and is expected to moderate to 2.7% in 2018. Meanwhile, public consumption is projected to grow by 1.0%, the same rate as last year. Government is anticipated to continue with its objective of reducing fiscal deficit to 3.0% of GDP this year.

Investment is projected to grow faster led by the private sector. Gross fixed capital formation is projected to grow by 3.7% in 2017 as compared to a slower growth of 2.7% last year. Private investment is anticipated to grow by 4.7% this year, 0.3 percentage point better than last year. The MIER's first quarter 2017 BCI revealed that businesses are more enthusiastic about the economy. BCI rebounded by 31.5 points (38.8% increment) as compared to the previous quarter surpassing the 100-point threshold of optimism. On y-o-y basis, the first quarter 2017 BCI increased by 21.3% compared to the same quarter of last year. The expected index increased significantly by 73.2% from the previous quarter or 19.6% y-o-y shows that while businesses are optimistic about the current business condition they are more upbeat about future expectation. All sub-indices, including sales, production, capital investment, capacity utilization and expected production registered an increment as compared to the fourth quarter of last year as well as on annual basis. Capacity utilization rate surged to 86.6% as compared to 76.5% in the last quarter and 76.4% in the same quarter last year. The first quarter 2017 Vistage-MIER CEO Confidence Index also revealed that CEOs are more likely to increase their investment as the sub-index for planned fixed investment increased by 14.3% y-o-y. Furthermore, import of capital account in 2016 recorded a 4.9% y-o-y increment indicates capacity expansion plans among businesses. Meanwhile public investment is expected to grow by 1.6% this year supporting government continued capacity expansion plan, particularly for important infrastructure projects.

Bank Negara Malaysia (BNM) is expected to continue pursuing an accommodative monetary policy favouring businesses as household debts are creeping up. The expansionary monetary policy is expected to continue this year since the price level is kept under control to complement the expansionary fiscal policy. The government continues to pursue an expansionary fiscal measures to boost private consumption, mostly through transfer payments.

MIER projected that real GDP for 2017 will grow at 4.5%. The growth will continually be driven by domestic demand, particularly by private expenditures. However, external demand is expected to be stronger, ending overdependence on domestic demand. The growth momentum is expected to intensify into 2018 the expected growth of 4.7 - 5.3%. Current account balances for this year as well as for 2018 are expected to improve, owing to a better commodity prices and stronger external demand, estimated to be 2.0% and 2.4% of GNI respectively.


Posted by suzy at 11:40 AM on April 18, 2017

MALAYSIAN ECONOMIC OUTLOOK


Executive Summary



The dawn of a new year has brought a glimmer of hope for better economic conditions ahead as OPEC together with some other non-OPEC bigger producers finally agreed on production cut. For the past two years the world economic community was made to believe that oil glut is the source of economic slowdown. Production control appeared to be a sound economic advice to many, against a conventional market economic doctrine of free entry and free exit. In a free market economy, price movement should lead to an allocative efficiency and eventually benefit everyone..



OPEC's Algiers and subsequently Vienna Meetings were regarded as a success as OPEC members, as well as some big non-OPEC producers, finally agreed on production, arrangement for the first time in 15 years. Markets responded favourably as prices surged approaching the USD60 per barrel mark. This development is good for Malaysia on two counts. First, higher oil prices will increase export as well as government revenues. Second, global trade flows are expected to improve with better oil prices. Nevertheless, this development is expected to be unsustainable as the downward pressure on oil prices remains, among others, due to improved production technology and a decrease in demand as a result of substitution effect.


Another important development in the world economy that has strong bearing on global trade is the growing sentiment of protectionism. The protectionism sentiment in developed economies is gaining momentum following Trump's presidential victory. Across the Atlantic, the contagious effect of Brexit is growing in the EU. This is a departure from the established ideology of free trade championed by powerful nations, transnational corporations and neo-liberal ideologues, which happen to be the prevailing dominant view in the contemporary international system. On the other hand, developing economies like Malaysia are intensely trying to liberalize their markets to maintain their WTO membership. The growing sentiment on protectionism will not necessarily assassinate free trade but it will add to uncertainty in the world economy. This is not a welcoming news to trading nations like Malaysia.


Meanwhile, economic growth of China and Japan, two of major Malaysia's trading partners are moderating. The American economy is expected to continue growing healthily but uncertainty about Trump's economic policy has an impact on Malaysian trade scenario. China, Japan and USA, these three countries represent one third of total Malaysia trade value. Thus it can be seen that current global economic conditions point to a prolonged weak external demand. Taking this into consideration, we have downgraded our forecast on exports for this year from 3.0% (December 6, 2016 publication) to 1.3%. Therefore, more weight is expected from domestic demand to drive economic growth for this year.


About 92% of real GDP for 2015 was attributed to domestic demand and the trend continued last year and it is expected to continue for the next two years. Therefore, the growth in domestic demand is the main source of GDP growth. For 2015, 4.7 percentage points of the 5.0% GDP growth, or about 94%, was contributed by domestic demand. A similar trend is expected for 2016 but the growth in domestic demand is slower at 4.6%, the lowest since 2008/2009 world financial crisis. The growth in domestic demand is expected to be flat at 4.6% for this year (downgraded from our earlier forecast of 5.0%) and rebounded slightly to 4.7% in 2018.


Slower growth in domestic demand is attributable to the slowdown in private expenditures, both for investment and consumption. The slowdown in private investment is more prominent mostly due to weakened investment flows globally. It is expected to grow at 5.5% in 2016 against an average growth of 13.3% a year for the past six years. Private investment is expected to improve to 6.0% this year (revised from our earlier forecast of 6.6%).


Private consumption is expected to grow at 5.4% in 2016, below an average growth of 7.1% a year for the past six years. It is not just slowing down, the contribution of private consumption towards GDP growth is getting more important to pick up the slack of private investment as can be seen by comparing the average growth for both for the past six years. High dependency on private consumption to boost domestic demand comes with a price. First, private debt level accumulated to almost 90% of GDP as a result of an easy consumption credit. This will increase debt servicing burden to households and this in turn will limit future spending prospects. Second, the current policy to boost consumer spending via transfer payments is good for improving current spending but it impedes future growth prospects. Direct income transfer crowds out competing public investment allocation particularly for productivity enhancement.


Consumer price inflation stays subdued despite an expansionary spending policy atmosphere. The average monthly CPI inflation rate for the first eleven months of 2016 is 2.1%. Nevertheless, food inflation remains higher than the overall inflation causing public anxiety particularly among low-to-middle income households. The fear of ringgit devaluation from imported inflation seems mitigated, as its direct impact is small in the context of CPI measurement. While, its indirect effect through input prices into domestic production is spread-out over time.


Consumer confidence level remains low as MIER fourth quarter's Consumer Sentiments Index (CSI) continues to be below the demarcation level of 100 points. The fourth quarter 2016 CSI slipped further continuing its downward trend. It shows that in general consumers are still pessimistic about the economy. The survey results revealed that the situation of consumers' current incomes in the fourth quarter 2016 deteriorated a bit from the previous quarter. Likewise, the survey indicated that consumers are feeling pessimistic about their future incomes as compared to the third quarter 2016. Consumers are also still pessimistic about the employment outlook. As their confidence level is still lacking, consumers indicated cautious and selective spending plans.


In line with CSI, MIER's Business Conditions Index (BCI) also dropped further in the fourth quarter 2016 by 2.7% as compared to the previous quarter after took a double-digit quarter-to-quarter dive of 22.5% in the third quarter. It remained below the 100-point threshold of optimism, which was briefly achieved in the second quarter 2016. Expected index in the fourth quarter 2016 plunged by 12.4% as compared to the previous quarter. Both sub-indices on expected production and expected export sales declined from the previous quarter by 4.8% and 7.6%, respectively. New export orders also dropped significantly by 6.6% from the third quarter 2016. All in all, BCI sub-indices revealed that external demand is still weak. Nevertheless, domestic demand remains robust to compensate the sluggish external sector. The sub-index for new domestic orders in the fourth quarter 2016 rebounded by 8.2% as compared to the previous quarter. Overall sales and production improved due to strong domestic demand, but likely to drop later as capital investment sub-index dropped by 10.7% and capacity utilization rate declined from 79.3% in 3Q2016 to 76.5% in 4Q2016, responding to weakened export demand.


The fourth quarter 2016 Vistage-MIER CEO Confidence Index also remains below the 100-point threshold of optimism for 12 consecutive quarters since 3Q2013. Vistage-MIER CEO Confidence Index is based on quarterly surveys on CEOs of small and mid-sized businesses in Malaysia. The 4Q2016 index fell by 6.8% from the previous quarter, the second consecutive fall. This suggests that lack of confidence among businesses with overhanging negative sentiments in the Malaysian economy continues.


Index for all six components recorded a decline as compared to the previous quarter, except the expected change in employment index remains the same. The other five components are currents economic conditions, expected economic conditions, planned fixed investment, expected revenue growth and expected profit growth. Generally, CEOs continued to be negative about the current as well as the expected economic conditions, as both indices remained below 100-point threshold of optimism. Almost 70% of the CEOs surveyed were in the opinion that the overall domestic economic conditions have worsened in the 4Q2016, compared to 57.0% for the previous quarter. Indices for another four components, namely expected change in employment, planned fixed investment, expected revenue growth and expected profit growth, however, recorded above 100-point threshold of optimism, although not improving.

Bank Negara Malaysia (BNM) is expected to continue pursuing an accommodative monetary policy favouring businesses as household debts are creeping up. The expansionary monetary policy is expected to continue this year since the price level is kept under control to complement the expansionary fiscal policy. The government continues to pursue an expansionary fiscal measures to boost private consumption, mostly through transfer payments.


Last year witnessed a moderated net exports as external demand remained sluggish. On a y-o-y basis, net exports for 2016 are expected to contract by 0.5% on account of a slower growth of exports with the rate of 0.3% (downgraded from our earlier forecast of 2.5%). However, imports are also expected to slow down as ringgit continues to be weakened. We have revised downward import growth for 2016 to 0.4% from the earlier projection of 2.9%. As such, the growth of net exports of goods and services for 2016 is maintained at -0.5% despite a slowdown in exports.

MIER maintains Malaysia's real GDP growth projection for 2016 at 4.2%. As the external sector remains sluggish, more weight is given to the domestic demand to steer growth. Growth will be driven largely by private sector expenditures, both on consumption and investment. The 2016 domestic demand growth, which have been revised upward by 0.1 percentage point in July from our April 2016 projection, is maintained at 4.6%, as a result of an improvement in private consumption. Meanwhile, the revised private investment growth is also maintained at 5.5%. Public investment is expected to pick up the shortcoming by growing at 1.4%, a turnaround from a negative growth of 1.0% last year. Public infrastructure development for last year continued as planned.

We have downgraded real GDP growth for 2017 to 4.5%, the lower bound of the range of our earlier forecast of 4.5 - 5.5% as some downside risks are beginning to emerge. External demand is not as strong as expected although commodity prices are showing sign of recovery. The slowdown in global trade and investment flows is expected to prolong. Oil prices are expected to be sticky upward as production agreement is believed to be fragile and fail to bring down the supply glut. Moreover, global oil demand is not expected to improve strongly either. Growth in major economies are slower than expected, particularly for China and Japan. The protectionism sentiment in developed economies is gaining momentum, thanks to recent political development across the word.

Domestic demand continues to be the engine of growth for this year but growing at a slower rate of 4.6% (initial forecast: 5.0%) as both private consumption and investment are expected to grow moderately by 5.5% and 6.0%, respectively (initial forecasts: 5.6% and 6.6%, respectively). Likewise, public consumption and investment are also expected to grow slowly. Export demand is also downgraded to 1.3% from initial forecast of 3.0% a year. Current account balances for this year as well as for 2018 are expected to improve, owing to a better commodity prices, estimated to be 2.0% and 2.4% of GNI respectively. The CPI inflation rate for 2017 is expected to average higher at 2.5%. The CPI inflation for 2018 is anticipated to be higher at 2.7%. Real GDP growth for 2018 is forecasted to be stronger at a range of 4.7 - 5.3%, as domestic demand as well as export demand are expected to improve further.


Posted by suzy at 11:41 AM on January 19, 2017






Archives


Recent Entries



Hit Counter
There has been
Warning: fopen(/DATA1/mier05/public_html/surveys/archives/count.txt): failed to open stream: No such file or directory in /home/mier05/public_html/outlook/index.php on line 438

Warning: fgets() expects parameter 1 to be resource, boolean given in /home/mier05/public_html/outlook/index.php on line 439

Warning: fclose() expects parameter 1 to be resource, boolean given in /home/mier05/public_html/outlook/index.php on line 440

Warning: filemtime(): stat failed for /DATA1/mier05/public_html/surveys/archives/count.txt in /home/mier05/public_html/outlook/index.php on line 446

Warning: fopen(/DATA1/mier05/public_html/surveys/archives/count.txt): failed to open stream: No such file or directory in /home/mier05/public_html/outlook/index.php on line 459
1 total visitors
1 visitors today 26-Jul-2017
0 total visitors previously
Last visitor IP []
Date of last visit
[01-Jan-1970 @ 07:30]
Current visitor IP [54.156.39.44]
Powered by
Movable Type 2.661