March 12, 2015
Global Markets Research
Economics - Malaysia
BNM Annual Report 2014:
Accommodative monetary policy
amid moderate growth prospects
BNM expects the Malaysian economy to grow at a more moderate pace of
4.5-5.5% in 2015, with domestic demand remained the main pillar of growth.
This was unchanged from the revised growth forecast tabled in conjunction
with the revised budget for 2015 in January. We maintain our projection for
the Malaysian economy to expand by 4.5% this year (the low end of official
forecast). There is also no change to our OPR pause view as we believe
policy priority remains on sustaining growth amid a challenging external and
domestic backdrop, as well as subdued inflation outlook. The climb in
household debt to 87.9% of GDP in 2014 (2013: 86.7%) despite 2nd straight
year of slower rise in household debt (+9.9% in 2014 vs +11.5% in 2013) will
remain a pertinent issue worth close monitoring.
2015 Growth Prospects
The Malaysian economy is expected to expand
moderately by 4.5-5.5% in 2015
According to the latest BNM Annual Report 2014, the Malaysian economy is
expected to expand at a more moderate pace of 4.5-5.5% in 2015 (2014:
+6.0%), amid external headwinds as well as challenges from domestic policy
reforms.This was unchanged from the growth projection tabled in
conjunction with the revised budget for 2015 in January but it marked a
downward revision from the 5.0-6.0% official forecast first tabled last October.
We are maintaining our 2015 growth forecast of 4.5%.
Malaysia Real GDP Growth & Inflation Rate
Real GDP Growth (% YOY)
CPI (%YOY)
7.4
6.3
5.6
4.8
5.4
3.6
4.5-5.5
4.7
3.2
3.2
2.1
2.1
1.7
2007
2008
2009
2010
2.0-3.0
1.6
1.3
2006
6.0
5.6
5.1
2011
2012
2013
2014
2015f
-1.5
Source: BNM Annual Report 2014
Domestic demand will remain the growth engine, with
further catalysts from private investment
1
Domestic demand will continue to remain the anchor for growth with
private investment activities to provide the added impetus. Growth in
private consumption is expected to soften to 6.0% YOY in 2015 (2014: +7.1%)
taking on the temporary heat from GST implementation and lower commodity
prices. On a less negative note, lower fuel prices under the managed float
ECONOMIC UPDATE
March 12, 2015
mechanism are expected to translate into higher disposable income for
households, help cushioning the impact from GST and a weaker MYR. Private
investment is expected to continue chart a steady growth path in 2015 (+9.0%
vs +11.0% in 2014), supported by resilient capital spending by the
manufacturing and services sectors that would cushion lower capex from the
oil & gas sector. Public investment on the other hand is expected to rebound
with a 5.1% increase in 2015 (2014: -4.9%) spurred by continued
implementation of infrastructure projects notably in the utility and
transportation sub-sectors.
Improved performance from manufacturing exports to
cushion weaker commodity exports
Increased shipments of E&E and other manufacturing products on the
back of improved global demand especially from a number of advanced
economies and sustained growth from Asia are expected to help mitigate
weaker export earnings from softer commodity prices. However, overall
exports of goods and services are expected to taper off to 3.0% YOY in 2015
(2014: +5.1%) while imports of goods and services are expected to tick up
marginally to 4.0% YOY (2014: +3.9%), hence reversing the contribution on
net exports from +19.7% in 2014 to -7.8% in 2015.
Malaysia Real GDP Growth by Expenditure (%YOY)
2014
2015f
11.0
7.1
Private
Investment
Private
Consumption
-4.9
Public Investment
Public
Consumption
2.7
Exports
3.0
3.9
4.0
6.0
4.5-5.5
Real GDP
5.1
Imports
5.1
4.4
9.0
6.0
Source: BNM Annual Report 2014
Services and manufacturing continue to lead growth
2
On the supply side, almost all sectors are expected to register slower growth
in 2015. The services and manufacturing sectors will remain as the two
biggest growth driver collectively accounting for an estimated 4.3ppt to
overall economic growth in 2015. Expansion in the services sector will be
supported by the consumption and trade-related subsector while exportoriented industries are expected to lead growth in the manufacturing sector
asdomestic-oriented sectors see softer growth in line with moderation in
domestic demand. The construction sector is expected to expand at a slower
pace of 10.3% YOY in 2015 (2014: +11.6%), amid softer growth in the
residential sub-sector and sustained activities in the non-residential sector.
Long gestation civil engineering projects in the transport and utility segments
will also provide additional support to the construction sector.
ECONOMIC UPDATE
March 12, 2015
Malaysia Real GDP Growth by Sector (%YOY)
2014
2015f
11.6
10.3
6.2
6.3 5.6
4.9
6.0 4.5-5.5
3.1 3.0
2.6
Real GDP
Services
Construction
Manufacturing
Mining
Agriculture
0.3
Source: BNM Annual Report 2014
Inflation
Inflation to remain contained at 2.0-3.0% for 2015
Inflation forecast is tweaked lower again to 2.0-3.0% for 2015, as the
effects of lower fuel prices following the shift to managed float system since
last December are estimated to outweigh higher prices on selective goods and
services post-GST implementation. Subdued domestic demand is also
expected to keep demand-push inflationary pressure at bay, rendering overall
price outlook very much contained. Acknowledging that global oil prices will
remain off previous year’s high, and assuming that GST implementation will
have a lesser than initially expected impact on inflation, we have revised our
CPI forecast to 2.3% in 2015 (2014: +3.2%).
Labour Market
Labour market remains steady
Labour market condition is expected to remain favourable with
unemployment rate expected to remain steady at 3.0% in 2015 (2014:
2.9%).
Monetary Policy
Priority of monetary policy is to support steady
growth
BNM opined current stance of monetary policy remains accommodative
and is supportive of growth given the developments in monetary and
financial conditions. Meanwhile, the central bank reaffirmed that the MPC will
continue to “carefully assess the balance of risks surrounding the outlook for
domestic growth and inflation” as well as to “monitor the risks of destabilizing
financial imbalances”. The monetary policy in 2015 will focus on ensuring
steady growth of the Malaysian economy amid contained risks to inflation.
We expect BNM to keep OPR steady at current level of 3.25% in 2015 as the
priority remains on sustaining growth as inflationary concerns take a
backseat.
Fiscal Policy
A fine balancing act as usual…maintaining fiscal
deficit target of 3.2% of GDP
3
The government is walking on a tight rope again in balancing between
growth and fiscal health. The focus of fiscal policy in 2015 is on
strengthening fiscal management amid the challenging environment of low
global energy prices. Priorities are on allocating fiscal resources to
infrastructure projects with large multiplier effects, investments to enhance
ECONOMIC UPDATE
March 12, 2015
future productive capacity and programmes for capacity building. The
government’s fiscal deficit is projected at RM37.0bn or 3.2% of GDP for
2015 as tabled in the revised budget for 2015, underpinned by broader
base of revenue and fiscal reforms. The deficit will be mainly financed by
domestic sources and a point to note is that debt to GDP ratio has inched
marginally lower to 54.5% as at end-2014 (end-2013: 54.7%).
Malaysia Federal Government Finance
Budget Deficit (RMbn)
Deficit (% of GDP) - RHS
-15.0
-20.0
-25.0
2014
2013
2012
2011
2010
2009
-3.2
-3.5
-3.3
-19.1
2015f
-10.0
2008
-2.0
2007
-5.0
2006
0.0
-3.2
-3.9
-20.7
-4.8
-4.8
-3.0
-4.0
-4.5
-5.0
-5.4
-30.0
-6.0
-35.0
-35.6
-40.0
-6.7
-45.0
-37.0
-38.6 -37.4
-7.0
-43.3 -42.5 -42.0
-50.0
-8.0
-47.4
Source: BNM Annual Report 2014
Balance of Payments
Smaller surplus in current account
The current account surplus is forecast to taper off again to RM21.4bn or
2.0-3.0% of GNI in 2015 (2014: 4.8% of GNI at RM49.5bn), on the back of
lower surplus in the goods account as gross imports growth (+6.0%) is
expected to outpace gross exports growth (+1.5%) by four folds, as well as
continued deficits in the services and income accounts. However, increase in
tourist arrivals and spending in conjunction with “Malaysia – Year of Festivals
2015” is expected to help narrow deficit in the services account to RM16.4bn
in 2015 (2014: RM20.5bn). Meanwhile, net outflows in the income account will
likely stay little changed as lower income from O&G companies will be offset
by higher income from other overseas investment by Malaysian
companies.The secondary income account will also see continued deficit as a
result of lower inward remittances and sustained outward remittances.
Balance of Payments (RM Billion)
Balance on Goods
Balance on Services
Primary Income
Secondary Income
Balance on Current Account
Financial Account
Direct Investment
Portfolio Investment
Financial derivatives
Other Investment
2011
151.6
-6.3
-21.8
-21.1
102.4
22.2
-9.3
26.1
-0.1
6.5
2012
125.6
-14.0
-36.0
-18.2
57.3
-23.0
-21.7
58.4
0.9
-60.6
Errors & Omissions
-30.9
-30.6
Overall Balance
94.7
3.9
Note: p= Preliminary, f= Forecast
Source: Bank Negara Malaysia Annual Report 2014
4
2013
102.7
-15.0
-35.2
-15.2
37.3
-15.0
-4.1
-2.8
-0.1
-8.1
2014p
125.1
-20.5
-37.4
-17.6
49.5
-76.5
-17.1
-37.9
-1.0
-20.6
2015f
94.2
-16.4
-38.0
-18.5
21.4
-
-7.5
-9.6
-
14.6
-36.3
-
ECONOMIC UPDATE
March 12, 2015
Hong Leong Bank Berhad
Fixed Income & Economic Research, Global Markets
Level 6, Wisma Hong Leong
18, Jalan Perak
50450 Kuala Lumpur
Tel: 603-2773 0469
Fax: 603-2164 9305
Email: HLMarkets@hlbb.hongleong.com.my
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