Malaysia
A good structural story
•
•
•
GDP contracted in q/q annualised terms in Q3
while growth eased relative to a year ago. (See
Chart 1.) The slowdown may well continue for
one or two more quarters. Final demand in the
West will stay weak while the boost from
inventories, which has lifted GDP since the
end of 2009 (see Chart 2), has now largely
come through. Electronics exports, in
particular, are at risk of falling sharply from
early 2011 once Christmas demand has
worked through (see Chart 3), which will
probably keep industrial output on its current
weak track too. (See Chart 4.)
Nevertheless, we still anticipate that the
slowdown will come to an end during the first
half of next year. We expect that GDP growth
will be back up to Malaysia’s trend pace of 5%
pa, or will be stronger, by this time next year.
The continued rapid expansion of intra-Asian
trade should partly offset the weakness in the
West. In addition, rising incomes, in tandem
with a supportive fiscal stance (see Chart 5),
should ensure that household spending keeps
expanding at a reasonable pace, even though
consumer debt levels are relatively high.
In addition, Malaysia is tackling the fall off in
foreign direct investment inflows through the
so-called Economic Transformation
Programme (ETP). The ETP over the period to
2020 has targeted investments totalling
$444bn, which is equivalent to 160% of
nominal GDP in 2010. Around 90% of this
total is slated to come from the private sector,
and some 70% of the latter will probably come
from domestic companies. Projects to improve
the transportation infrastructure will start from
Q1 next year, perhaps with an eye to holding
early elections in 2011.
30 Emerging Asia Economic Outlook 4/2010
•
The government is also aiming to accelerate
GDP growth through new reforms which
deregulate the economy. However, an
overhaul of the positive discrimination policies
toward bumiputra groups still looks too
politically contentious an issue to tackle. The
commitment to change appears deep-rooted
and we anticipate that there will some
progress. But the risk is that the private sector
does not buy into the reforms and the
implementation of ETP projects is delayed.
•
Consumer price inflation has stayed wellcontained. (See Chart 6.) What’s more, the
roll-back of subsidies will stay gradual while
there is still plenty of scope for more MYR
appreciation, at least on a trade-weighted
basis. (See Chart 7.)
•
Nevertheless, the central bank will not want to
be overly reliant on currency gains to keep
inflation at bay. Accordingly, we expect that
rate hikes will resume in Q1 and see rates
climbing to the middle of a neutral range,
which is 3-4%, by end-2011. (See Chart 8.)
TABLE 1: KEY FORECASTS
% y/y, unless stated
Forecasts
Average
2009 2010 2011 2012
99 – 08
GDP
Private cons’ptn
Total fixed invest.
5.6
7.6
7.0
-1.7
0.7
-14.6
7.5
6.5
9.0
5.5
5.0
6.5
6.2
6.0
7.0
Consumer prices
Unemp. rate (%)(1)
2.4
3.4
0.6
3.7
1.8
3.4
2.5
3.2
2.5
3.2
Gen’l gov’t bal(2)
Current account(2)
-4.3
13.0
-7.0
16.5
-5.0
14.0
-4.0
13.0
-3.2
10.0
(1) End of period (2) As % of GDP
Malaysia Charts
Chart 1: GDP
Chart 2: GDP by Expenditure (%-point annual contribution)
16
% q/q (saar, CE estimate)
16
12
% y/y
12
15
15
10
10
8
8
4
4
5
5
0
0
0
0
-4
-4
-8
-8
-12
-12
-10
-16
-16
-15
2004
2005
2006
2007
2008
2009
-5
2010
-5
Net Exports
Inventories
Household Spending
2005
1.3
Merchandise Exports (% 3m y/y, LHS)
North America Book-to-Bill Ratio (RHS, adv. 4m)
30
1.1
1.0
10
0.9
0
0.8
0.7
-10
0.6
-20
-30
0.4
2006
2007
2008
2009
2008
2009
2010
20
20
10
10
0
0
-10
-10
Exports
-20
2010
-20
Industrial Production
0.5
2005
-15
2007
1.2
20
2004
-10
Chart 4: Exports & Production (% 3m/3m)
Chart 3: Malaysia Exports & Book-to-Bill Ratio (%)
40
2006
Investment
Govt
-30
-30
2004
2011
2005
Chart 5: Government Budget (% of GDP)
2006
2007
2008
2009
2010
Chart 6: Consumer Prices
10
25
25
10
20
20
8
15
15
6
10
10
4
4
5
5
2
2
0
0
0
0
-5
-5
-2
-2
-10
-4
Revenues
-10
01
02
Operating Exp
03
04
05
Dev Exp
06
07
08
Budget Bal
09
10E
CPI (% 3m/3m, LHS)
Food (% 3m/3m, LHS)
-4
Chart 7: Exchange Rate
120
2006
2007
2009
2008
2010
Chart 8: Policy Rate & Real Interest Rate (%)
Ringgit Real Trade Weighted Index (LHS)
Ringgit per US$ (Inverted, RHS)
115
6
CPI (% y/y, RHS)
2005
11F
8
6
3.2
4
4
2
2
0
0
3.4
110
Bank Negara Overnight Policy Rate
Real Interest Rate (BNM minus annual CPI)
3.0
6
3.6
105
3.8
100
4.0
95
Ringgit stronger
90
00
01
02
03
04
05
06
07
08
09
10
11
-2
-2
4.2
-4
4.4
-6
CE Forecasts
-4
-6
2005
2006
2007
2008
2009
2010
2011
Sources – Thomson Datastream, Bloomberg, CEIC, Capital Economics
Emerging Asia Economic Outlook 4/2010 31