Download BNM Annual Report 2015

March 24, 2016
Global Markets Research
Economics - Malaysia
BNM Annual Report 2015:
More modest growth outlook
BNM expects the Malaysian economy to grow at a more moderate pace of
4.0-4.5% in 2016, amid downside growth risks in the wake of global
economic and financial uncertainties, which will have negative implications on
external and domestic demand. This was unchanged from the revised growth
forecast tabled in conjunction with the revised budget for 2016 in January.
We maintain our projection for the Malaysian economy to expand by 4.0%
this year (the low end of official forecast). There is also no change to our
OPR cut view as we believe policy priority remains on sustaining growth
especially if downside risks to growth intensify. Further increase in household
debt to 89.1% of GDP in 2015 (2014: 86.8%) could however be a potential
factor weighing on any decision in lowering interest rate.
2016 Growth Prospects
The Malaysian economy is expected to expand at a
slower pace of 4.0-4.5% in 2016
According to the latest BNM Annual Report 2015, the Malaysian economy is
expected to expand at a slower pace of 4.0-4.5% in 2016 (2015: +5.0%),
amid looming external uncertainties and headwinds from moderating domestic
demand. This was unchanged from the growth projection tabled in
conjunction with the revised budget for 2016 in January but marked a
narrowing down in ranges from the 4.0-5.0% official forecast first tabled last
October. We are maintaining our 2016 growth forecast of 4.0%.
Source: BNM Annual Report 2015
Domestic demand will remain the growth engine, with
support from the private sector
Domestic demand, while is expected to take on a more moderate growth
path, will remain the main engine for growth driven by private sector
spending. Even though private consumption is expected to grow at a
softer pace of 5.1% YOY in 2016 (2015: +6.0%) as households continue to
make spending adjustment amid higher costs of living and the uncertain
economic and financial backdrop, it will remain as the key driver of growth.
This adverse effect is however expected to be cushioned by the government
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ECONOMIC UPDATE
March 24, 2016
targeted measures to increase household disposable income in the like of
reduction in employee’s EPF contribution, additional tax relief and higher
BR1Ms cash assistance. Private investment is also expected to increase
at a slower pace of 5.5% YOY in 2016 (2015: +6.4%) as a softer global
Manufacturing exports to remain supported with
smaller contraction in commodity exports
economy and low commodity prices will keep a lid on capital expenditure
plans. Meanwhile, public sector activities is also projected to grow at a slower
pace of 1.6% YOY in 2016 (2015: +2.1%) as a turnaround in public investment
will be partially offset by slower gains in public spending. On the external front,
net exports are expected to turn around with a 1.1% YOY gain in 2016 (2015:
-3.7%), supported by continued expansion and in manufacturing exports and
smaller contraction in commodity exports.
Source: BNM Annual Report 2015
All sectors to see slower growth in 2016; services
and manufacturing continues to lead
On the supply side, all sectors are expected to register slower growth in
2016. As in previous years, the services and manufacturing sectors will
remain the two biggest growth driver collectively accounting for an estimated
3.3ppt to overall economic growth in 2016. Expansion in the services sector is
projected to soften to 4.4% in 2016 (2015: +5.1%), driven by robust growth in
the information and communication, and transportation & storage subsectors,
while consumption-related and the finance and insurance subsectors are
expected to experience slower growth in line with slower private consumption
and capital market activities respectively. The manufacturing sector is
expected to grow at a slower pace of 4.1% in 2016 (2015: +4.9%) attributable
to slower expansion in both domestic- and export-oriented industries.
The construction sector is expected to expand at a slower pace of 7.9% YOY
in 2016 (2015: +8.2%), amid moderation expected from both the residential
and non-residential sectors while new gas production capacity from the Train
9 LNG production facility in Bintulu, Sarawak will underpin growth in the
mining sector. The agriculture sector will be the only sector seeing a mild
contraction, of 0.3% YOY in 2016 (2015: +1.0%) in view of weather-induced
lower palm oil yields.
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ECONOMIC UPDATE
March 24, 2016
Source: BNM Annual Report 2015
Inflation
Inflation to remain well-contained albeit slightly
higher at 2.5-3.5% for 2016
Inflation forecast for 2016 is maintained at 2.5-3.5%, in line with ours 2.8%
projection (2015: 2.1%) as a result of adjustment in a number of priceadministered items and imported inflation. Continued low commodity prices, and
the absence of any demand-pull price pressure amid subdued demand will
however keep a lid on overall inflation.
Labour Market
Labour market condition is expected to remain favourable although
Labour market remains steady
unemployment rate is expected to inch marginally higher to 3.3-3.5% in 2016
(2015: 3.2%) as continued expansion in domestic demand supports employment
growth.
Monetary Policy
Priority of monetary policy is to support sustainable
growth and price stability
BNM reiterated that current stance of monetary policy remains
accommodative and is supportive of economic activities while
acknowledging there are heightened risks in the global economic and
financial environment. Against this backdrop of global uncertainties, BNM
reaffirmed that the MPC will closely monitor and assess these global risks and
their implications on domestic price stability and growth outlook, as well as the
risks of financial imbalances. The monetary policy in 2016 will focus on
ensuring sustainable growth and price stability of the Malaysian economy.
With sustaining growth remaining as a policy priority, we foresee the case for
an OPR cut towards the later part of 2016 especially if growth outlook
deteriorates more than expected.
Fiscal Policy
Maintained fiscal deficit target of 3.1% of
GDP…focus on high impact infrastructure projects
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On the fiscal front, no different from previous years as the government
strives to balance between its growth agenda and fiscal consolidation.
The issue has become more pertinent this year in the wake of the plunge in
global crude oil prices to below $30/ barrel at the beginning of 2016 which
has prompted the government to revise its 2016 budget plans. Reflecting its
commitment towards budget consolidation, the government has called for
ECONOMIC UPDATE
March 24, 2016
spending cuts from both the development and operational front in order to
maintain its budget deficit target at 3.1% of GDP for 2016 (2015: -3.2% of
GDP). Priority will however will given to high impact higher multiplier
infrastructure projects as well as socio-economic efforts to help the lower- to
medium-income group to cope with rising costs of living and in return support
private consumption. The deficit will be mainly financed by domestic sources
and a point to note is that debt to GDP ratio has inched higher to 54.5% as at
end-2015 (end-2014: 52.7%).
Source: BNM Annual Report 2015
Balance of Payments
The current account is expected to register a smaller surplus of approximately
RM19.1b or 1.0-2.0% of GNI in 2016 (RM34.0b or 3.0% of GNI in 2015). The
smallest surplus since 1998 is attributable to lower surpluses in the goods account
as imports is expected to grow at a faster pace than exports, as well as continued
deficits in the services and income accounts. Gross exports are expected to pick
up a little and grow 2.4% in 2016 (2015: +1.9%) vs the 4.9% increase in gross
imports (2015: +0.4%). 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
Smaller surplus in current account
income account will also see continued deficit as a result of lower inward
remittances vis-à-vis outward remittances.
Balance of Payments (RM Billion)
Balance on Goods
Balance on Services
Primary Income
Secondary Income
Balance on Current Account
Capital Account
Financial Account
Direct Investment
Portfolio Investment
Financial derivatives
2011
140.5
1.5
-21.6
-21.1
99.3
-0.1
23.3
-9.3
26.1
-0.1
2013
96.6
-9.6
-34.0
-17.5
35.5
-0.0
-20.2
-6.3
-3.0
-0.2
2014
113.4
-11.2
-37.3
-17.6
47.3
0.3
-81.6
-18.5
-38.5
-1.0
2015p
108.9
-20.5
-32.2
-22.2
34.0
-
2016f
99.5
-19.2
-38.0
-23.1
19.1
-
Other Investment
6.5
-63.4
-10.7
-23.6
-
-
Errors & Omissions
-27.8
-23.5
-0.6
-2.5
-
-
Overall Balance
94.7
3.9
14.6
-36.5
-
-
Note: p= Preliminary, f= Forecast
Source: Bank Negara Malaysia Annual Report 2015
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2012
113.0
-8.5
-35.8
-18.5
50.2
0.2
-23.0
-24.4
68.9
0.9
ECONOMIC UPDATE
March 24, 2016
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: [email protected]
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