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2Q 2018 BNM Quarterly Bulletin

17 August 2018

Prestasi Ekonomi Suku Kedua Tahun 2018

Gabenor

Bank Negara Malaysia

17 Ogos 2018

Sidang Akhbar

1


17 August 2018

Sidang akhbar akan meliputi:

Prestasi ekonomi pada suku kedua tahun 2018

Perkembangan monetari dan kewangan

Isu khas dan inisiatif dasar Bank Negara Malaysia

2


17 August 2018

High-frequency indicators continued to show further global

expansion, albeit at a more moderate pace

Source: Macrobond, Haver, Bloomberg, staff estimates

Index %, yoy

Global Composite PMI

(Manufacturing and Services)

World Export Volume

46

48

50

52

54

56

58

60

Ma

y-1

6

Jul-

16

Sep-1

6

No

v-1

6

Jan-1

7

Ma

r-1

7

Ma

y-1

7

Jul-

17

Sep-1

7

No

v-1

7

Jan-1

8

Ma

r-1

8

Ma

y-1

8

Jul-

18

Regional Economies

Advanced Economies

> 50 = expansionary

3.0

0

1

2

3

4

5

6

7

Ma

y-1

6

Jul-

16

Sep-1

6

No

v-1

6

Jan-1

7

Ma

r-1

7

Ma

y-1

7

Jul-

17

Sep-1

7

No

v-1

7

Jan-1

8

Ma

r-1

8

Ma

y-1

8

Post-GFC avg. = 2.4

3


17 August 2018

Importantly, GDP outturns in 2Q18 suggested less synchronous

growth across the advanced and regional economies

4

Advanced Economies

2.8

2.2

1.3

6.7

6.0

5.3

3.9

3.3

2.9

US Euro area UK PR China Philippines Indonesia Singapore C. Taipei Korea

1Q18 2Q18

Regional EconomiesGDP, Annual change (%) GDP, Annual change (%)

Source: National Authorities, Haver

1Q18 2Q18


17 August 2018

Key domestic economic developments in 2Q 2018

News dominating mainstream

media in 2Q 2018

14th General

Election

Positive

sentiments

Tax Holiday

5

Weak crude palm oil productionDeclining natural gas production

2.5

-7.2

-15

-10

-5

0

5

10

15

2Q-17 4Q-17 2Q-18

*Natural gas accounts for 46% of mining sector’s

Value Added

Source: Department of Statistics, Malaysia

Crude Palm Oil* IPINatural Gas* IPI

Annual change (%)Annual change (%)

12.3

-6.4

-30

-20

-10

0

10

20

30

2Q-17 4Q-17 2Q-18

*CPO accounts for 47% of agriculture sector’s Value

Added



17 August 2018

Malaysia: Slower growth of 4.5% in 2Q 2018

6


-2

0

2

4

6

8

2Q-17 3Q-17 4Q-17 1Q-18 2Q-18

Mining Agriculture

Construction Manufacturing

Services

On the supply side, services and manufacturing

sectors remained the key drivers of growth

Annual change, % /

Ppt contribution to GDP

5.86.2 5.9

5.4 4.5

Growth was affected by commodity-specific

shocks in the mining and agriculture sectors

Agriculture: Weak CPO production

• Supply constraints (Fewer work days, labour

shortages)

• Adverse weather conditions

Mining: Declining natural gas production

• Supply outages in East Malaysia

Services & Manufacturing: Continued strength

• Strong consumer spending following tax holiday

• Continued demand for E&E and consumer-related

products

% qoq sa2Q 17 3Q 17 4Q 17 1Q 18 2Q 18

1.3 1.7 1.0 1.4 0.3


17 August 2018

On the demand side, the production weakness is reflected in lower

net exports, while public investment contracted

5.86.2

5.9

5.4

4.5

-4

-2

0

2

4

6

8

10

2Q-17 3Q-17 4Q-17 1Q-18 2Q-18

Net exports Private consumption

Private investment Public consumption

Public investment Change in stocks

GDP growth

Annual change, % /

Ppt contribution to GDP


Growth in 2Q 2018 was supported by private

sector spending…

…but weighed down by net exports and public

investment

7

Lower support from net exports

• Weak commodity exports

Strong private sector expenditure

• Positive consumer and business sentiments

• Favourable labour market conditions

Contraction in public investment

• Weaker investment as some large projects near

completion

• Contraction in development expenditure due to

transition in government


17 August 2018

Private consumption grew strongly by 8.0%, supported by continued

income growth and better sentiments

Higher household spending

in 2Q

Annual change, %

Real Private Consumption Growth

6.9

8.0

5

6

7

8

9

2Q-16 4Q-16 2Q-17 4Q-17 2Q-18


Continued private sector

wage growth

Annual change, %

Private Sector* Wage Growth

8

91.0

132.9

3Q-17 4Q-17 1Q-18 2Q-18

Consumer sentiments

highest in two decades

Optimism

threshold = 100

MIER Consumer Sentiments IndexPoints

6.6

5.7

3

4

5

6

7

8

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

*Private sector wages is derived from the salaries

and wages data published in the Monthly

Manufacturing Statistics and Quarterly Services

Statistics by the Department of Statistics Malaysia


17 August 2018

Higher private investment growth at 6.1% amid continued high

capacity utilisation

0.5

6.1

0

4

8

12

16

2Q-16 4Q-16 2Q-17 4Q-17 2Q-18

Source: Department of Statistics, Malaysia, MIER

Annual change, %

MIER Capacity Utilisation Rate

%

Private investment

trended higher

Capacity utilisation

remained elevated

Real Private Investment Growth

80.0

83.1

70

80

90

2Q-16 4Q-16 2Q-17 4Q-17 2Q-18

‘11 – ’17 average: 79.3%

Going forward, investment

activity to be supported by:

• Implementation of

ongoing projects

• Support from external and

domestic demand conditions

9


17 August 2018

Gross exports continued to expand in 2Q 2018

External Trade

(Annual change, %)

Share, %

(2017)

2017 2018

4Q 1Q 2Q 1H

Gross exports 100 12.4 5.8 8.2 7.0

Domestic exports1 85 11.1 -0.7 0.2 -0.2

Manufacturing 83 14.2 8.2 10.6 9.4

E&E 37 14.7 11.8 9.8 10.8

Non-E&E 46 13.7 5.5 11.3 8.4

Commodities 16 4.3 -4.8 -3.7 -4.3

Gross imports 100 14.4 -0.8 7.7 3.4

Intermediate 57 9.0 -10.5 -4.7 -7.6

Capital 14 17.1 -13.0 5.7 -4.3

Consumption 8 4.7 2.3 -2.8 -0.4

Others 21 32.4 37.3 51.3 44.3

Trade balance

(RM bil)- 27.7 33.4 27.2 60.6

1 Domestic exports is defined as gross exports excluding re-exports. This is a newly published time series data by the Department of Statistics Malaysia.


Expansion supported by manufacturing exports Going forward, export performance is

expected to remain firm

10

• Continued demand from major trade partners• (United States, regional economies)

• Support from global technology cycle • (e.g. Internet of things, Automotive)

• Expanded production capacity• (E&E and primary-related manufacturing)


17 August 2018

Current account registered a surplus of RM3.9 billion

Current account supported by goods surplus

Current account balance

-6

-4

-2

0

2

4

6

8

-30

-20

-10

0

10

20

30

40

2Q-17 3Q-17 4Q-17 1Q-18 2Q-18

GoodsServicesPrimary incomeSecondary incomeCurrent Account Balance, % of GNI (RHS)

RM billion % of GNI

Current account to remain in surplus

going forward

• Sustained goods surplus

– Continued global demand and

support from commodity exports

• Services and income accounts

to remain in deficit

– Continued reliance on foreign service

providers

– Sizeable income accrued to foreign

investors


11


17 August 2018

Headline inflation declined in the second quarter

• The decline in inflation due to the

zerorisation of the GST was offset by

higher fuel inflation

• Headline inflation is expected to

moderate in 2018

• Underlying inflation is expected to

remain stable

*Note: Core inflation, which is a measure of underlying inflation, excludes the

estimated direct impact of the GST zerorisation

Source: Department of Statistics, Malaysia and Bank Negara Malaysia

estimates

Contribution to Headline Inflation by Component

1.81.3

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

2016 2017 2018

GSTOther price-administered itemsFuelPrice-volatile items (e.g. fresh food items)Core inflation (ppt)Headline inflation (%)Core inflation* (%)

%, percentage points

12


17 August 2018

Monetary policy remains accommodative

• The MPC maintained the policy rate in

May and July

‒ Malaysia’s growth prospects remain

firm, supported mainly by domestic

demand

‒ Lower headline inflation to be

temporary, due to impact of policy

measures

• Monetary operations continue to ensure

sufficient liquidity

‒ Orderly functioning of money and

foreign exchange markets

‒ Stable financial intermediation

supporting economic activity

Source: Bank Negara Malaysia

%

Overnight Policy Rate

2.0

2.5

3.0

3.5

4.0

2011 2012 2013 2014 2015 2016 2017 2018

MPC maintained the Overnight Policy Rate

at 3.25% since the increase in January 2018

R

13


17 August 2018

Financial institutions remained well-capitalised, with sufficient liquidity to support intermediation

RM billion Ratio, %

140

60

80

100

120

140

160

0

100

200

300

400

500

600

3Q

-16

4Q

-16

1Q

-17

2Q

-17

3Q

-17

4Q

-17

1Q

-18

2Q

-18

Other stock of high-quality liquid assets (HQLA)

Ringgit surplus liquidity placed with BNM (incl. SRR)

Liquidity Coverage Ratio (LCR, RHS)

LCR min. requirement (RHS)

2018 LCR minimum requirement

Liquidity coverage ratio and available liquid assets


Total capital ratio

(%)

Capital adequacy

ratio (%)

2Q 20181Q 2018

17.6

17.0 237 239

Insurance/Takaful

Sector

Banking System

Stress tests conducted by the Bank affirmed banks’ and insurers’ resilience to withstand severe

shocks under adverse macroeconomic and financial conditions

Sustained resilience of financial institutions continued to support

domestic financial stability

14


17 August 2018

Growth of net financing remained supportive of economic activity

Financing to the private sector was sustained

during the quarter

Increase in growth of outstanding loans driven

mainly by loans to businesses

Contribution to Net Financing Growth* Outstanding Banking System and DFIs Loan Growth by

Borrowers

6.3

0

1

2

3

4

5

6

7

8

9

10

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

2016 2017 2018

Corporate Bonds

Banking System and DFI Loans

Total Net Financing

ppt, %

*Net financing comprises outstanding banking system and DFIs loans; and

outstanding corporate bonds

Source: Bank Negara Malaysia Source: Bank Negara Malaysia

Households,

5.3%

Businesses,

2.2%

Total,

4.4%

0

2

4

6

8

10

12

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

2016 2017 2018

Households

Businesses

Total

yoy, %

15


17 August 2018

The ringgit depreciated against the US dollar in the second quarter

Note: Regional countries include Thailand, Indonesia, South Korea,

Singapore, China and Philippines

Source: Bank Negara Malaysia, Bloomberg

Ringgit depreciation since April driven mainly

by external factors

The ringgit was, however, more resilient

compared to regional currencies in 2018

Performance of Regional Currencies against USD

-8.8

-7.2

-6.4

-5.5

-5.2

-3.7

-2.8

-1.8

-0.9

-5.1

-4.2

-2.2

-5.3

-4.7

-4.5

-4.0

-5.9

-4.4

-10 -8 -6 -4 -2 0

INR

IDR

PHP

CNY

KRW

TWD

SGD

THB

MYR

2Q 2018 YTD


%

Performance of Selected Regional Currencies Against USD

Index (Dec 17=100)

16

86

88

90

92

94

96

98

95

97

99

101

103

105

107

De

c-1

7

Jan-1

8

Feb

-18

Ma

r-1

8

Apr-

18

Ma

y-1

8

Jun-1

8

Jul-1

8

Rising trade

tensions

Rising

UST yields

GE14

MYR/USD

Regional

Average

USD Index

(RHS)

USD Index


17 August 2018

-4.4

-17.7

-11.9

-0.6

-8.5

-8.5

-5.0

11.1

-10.2

-10.1

-9.9

-9.2

-6.3

-4.9

-4.6

7.4

-20 -10 0 10 20

Thailand

China

Philippines

Malaysia

Indonesia

Korea

Singapore

India

2Q 2018 YTD(as at 15 Aug 2018)

% change

Financial conditions remained stable despite sizeable outflows

Regional Equity

Source: Bloomberg

Regional 5-year Sovereign Bond Yield

Source: Bloomberg

KLCI performance in line with

regional indices; decline was

sector-specific

Bond market was resilient amid

support from domestic

institutional investors

-50

-6

49

19

35

75

118

186

-32

-14

12

21

42

47

68

188

-100 0 100 200

China

Korea

Singapore

Malaysia

Thailand

India

Philippines

Indonesia

2Q 2018 YTD(as at 15 Aug 2018)

bps change

%

3.44

2.94

3.69

3.17

3.69

3.18

1.5

2.0

2.5

3.0

3.5

4.0

3M KLIBOR 3M Fixed Deposit

End 2017

Post-OPR Increase (+25 bps, Mar-18)

End 2Q 2018

KLIBOR and Fixed Deposit Rates

Wholesale and retail

rates remained stable


17


17 August 2018

A more effective FX intermediation onshore promotes market

stability

Source: Bank Negara Malaysia, Bloomberg

Note: Volatility refers to the difference between USD/MYR interbank intraday highest and lowest rate.

Offshore rate refers to the NDF 1-month rate while onshore rate refers to the spot rate.

18

7.9

10.0 10.2 11.9

9.9 11.2

12.1 11.4

0

2

4

6

8

10

12

14

Nov-16

Mar-17

Jun-17

Sep-17

Dec-17

Mar-18

Jun-18

Jul-18

228

6279

113137

12292

108

0

50

100

150

200

250

Nov-16Mar-17Jun-17Sep-17Dec-17Mar-18Jun-18Jul-18

42

2327

32 30

22 2428

0

10

20

30

40

50

Nov-16

Mar-17

Jun-17

Sep-17

Dec-17

Mar-18

Jun-18

Jul-18

3.1

0.9

1.41.2

0.9 1.00.7 0.7

0

1

2

3

4

Nov-16

Mar-17

Jun-17

Sep-17

Dec-17

Mar-18

Jun-18

Jul-18

Average Intraday Movement of USD/MYR

Average USD/MYR Bid-Ask Spread

Average daily FX turnoverUSD bn Points

Points

USD bn

Onshore volume continues to show

improvements

Efficient price discovery ensures

stability in USD/MYR movement

Lower impact from offshore market

following decline in volume transacted

FX transaction cost remains

stable for market participants

Increasing influence of real sector on

foreign currency demand and supply

Global uncertainties have led to an

increase in sovereign credit spread

USD bn

Basis

points

Average Daily 5-year CDS spreadNet Foreign Exchange Conversion

from Exports (Cumulative)

-0.51.4

3.6

7.39.2

11.4

13.613.7

-0.5

1.5

3.5

5.5

7.5

9.5

11.5

13.5

Jan - Nov-16 Dec-16 - Sep-17 Dec-16 - Jun-18

151

108

88

6861 67

100 96

50

70

90

110

130

150

170

Nov-16

Mar-17

Jun-17

Sep-17

Dec-17

Mar-18

Jun-18

Jul-18

Average Daily

USD/MYR NDF volume


17 August 2018

40.8%

33.5%

18.0%

3.6% 2.2% 1.1% 0.6%0

20

40

60

80

Asset

Ma

nag

em

ent

Ce

ntr

al

Banks/

Govern

ments

Pensio

nF

un

ds

Banks

Insu

rance

Co

mpa

nie

s

No

min

ees/

Cu

sto

dia

ns

Oth

ers

RM billion

23.7%

0%

5%

10%

15%

20%

25%

30%

35%

0

50

100

150

200

250

300

De

c-1

5

Ma

r-1

6

Jun-1

6

Sep-1

6

De

c-1

6

Ma

r-1

7

Jun-1

7

Sep-1

7

De

c-1

7

Ma

r-1

8

Jun-1

8

% NR HoldingRM billion

Govt Bond (LHS)% NR of Govt (RHS)

29.8%

Note:

- Malaysian Government Bonds includes Malaysian Government Securities (MGS), Malaysian Government Investment Issues (MGII), and Sukuk Perumahan

Kerajaan (SPK).

- ‘Others’ include individuals, non-financial corporations and unidentified sectors


Distribution of Non-resident Holdings of

Government Bonds as at end-Jun 2018

Non-resident Holdings of

Malaysian Government Bonds

Non-resident holdings of Malaysian government bonds declined in 2Q 2018

amidst Fed rate hike expectations and global uncertainties

Long-term investors (asset managers, central

banks and pension funds) remain key holders of

the Malaysian government bonds

Non-resident holdings of Malaysian

Government bonds stood at 23.7% as at

end-Jun 2018

19


17 August 2018

External debt remains manageable


Limited rollover risk as more

than half is skewed towards

medium- to long-term tenures

Breakdown of Malaysia’s External

Debt by Maturity in 2Q 2018

(End-2Q 2018: RM 936.5bn; % share)

Close to a third is denominated

in ringgit and not subject to

valuation changes

FX debt are mostly subjected

to either prudential safeguards

or flexible terms

20

Medium- to long-term

52%

Short-term

48%

Breakdown of Malaysia’s External

Debt by Currency in 2Q 2018

(End-2Q 2018: RM 936.5bn; % share)

Ringgit-denominated debt

31.2%

Foreign currency-denominated debt

68.8%

Trade credits

• Backed by export

earnings

Note: Numbers may not add up due to rounding

15.7%

22.5%

Intercompany loans

• Flexible/concessionary

terms

Interbank borrowing

(33.6%) and non-

resident deposits (5.7%)

• Prudent liquidity

management including

limits on funding and

maturity mismatches

Breakdown of Malaysia’s foreign-

currency denominated external debt

in 2Q 2018 (% share)

39.3%

14.8%

7.7%

Bonds and notes• Mainly for investment

abroad that will raise

future income

Others


17 August 2018

Reserves remain adequate and is not the only means to meet

external obligations

0.9

0.0

0.5

1.0

1.5

2.0

0

50

100

150

200

2010 2012 2014 2016 2018

Net International Reserves

Reserves/ST ext debt (RHS)

31 July 2018

USD104.5 bn

Reserves to ST external debt coverage

at 0.9 times remains adequate to

facilitate international transactions

Net International Reserves


USD billion Times

Interbank borrowing

49%

NR deposits

19%

Loans7%

Trade credits11%

Others5%

Banks account for 69.3% of

short-term external debt

Banks have external

assets to meet

external obligations

150

200

250

300

350

Banks'STED

Banks'externalassets

Liabilities of the banking

sector (69.3%)

RM billion

21

Intercompany

loans

9%


17 August 2018

Malaysia’s external debt reflects the depth of our financial markets

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

0

50

100

150

200

250

300

350

SG HK MY IND TH PH

ST External Debt to GDP and Reserves Coverage Ratio

ST External Debt to GDP

Reserves to ST External Debt (RHS)

Times% of GDP

Malaysia’s reserves coverage ratio to ST external debt is comparable to financially open

economies in the region

Short term external debt reflects:

• Increasing regionalisation of domestic banks

• Strong presence of locally-incorporated

foreign banks

• Malaysia’s deeper and more developed

financial markets

Country SG HK MY ID TH KR

Bond market

capitalization

(% share of GDP) 183.2 69.5 97.6 18.4 72.8 125.3

1 As at 1Q 2018 (except for Indonesia, as at 2Q 2018)

22

Source: Department of Statistics, Malaysia, Bank Negara Malaysia, Asian Bonds Online (Asian Development Bank), World Bank, International

Monetary Fund and Haver


17 August 2018

Steady growth path in 2018 and 2019

2018

23

Factors supporting growth

▲ Sustained global growth and trade

▲ Recovery of commodity output

▲ Favourable labour market conditions

Factors constraining growth

▼ Trade tensions

▼ Cancellation of mega projects

2019

Factors supporting growth

▲ Strong business and consumer sentiments

▲ Strong consumer spending due to tax holiday

▲ Expansion in manufacturing production capacity

Factors constraining growth

▼ Prolonged disruptions in oil and gas production

▼ Low production in agriculture

Downside risks to growth

▼ Further escalation of trade tensions

▼ Financial market volatility


17 August 2018

10.4

3.1

2010 2011 2012 2013 2014 2015 2016 2017

3616

1513 12

9

42 2

HK CN SG GB JP DE ID KR LU

ROW

Market

% share of exports

54

23

8 8 5

Services Mfg. Mining Agri. Const.

55.596.0

11.8

17.8

0

10

20

0

50

100

150

1998 2017

Size of Bond MarketCapital Ratio* (RHS)

Malaysia’s macroeconomic fundamentals remain strong

Broad-based sources of growth Positive labour market

conditions

Diversified export market

and product

Deeper financial markets,

resilient banking system and

strong financial buffers

Continued current account

surplus

% of GNI

Current Account Balance

Malaysia GDP by Economic Sectors

(2017)

% of

nominal

GDP

Size of Bond Market

and Banking Capital Ratio %

Source: Department of Statistics, Malaysia and Bank Negara Malaysia p preliminary

Conducive investment

destination for foreign investors

FDI Inflows of RM 41bn by Source

Country (2017)

% share of GDP

% share of total FDI inflows

Employment

(million)

2016 2017

14.1

14.5

Product

% share of exports

E&E

Non-E&E

Commodities

PR ChinaNIEs

G3

ASEAN

24

* Capital ratio in ‘98 refers to the risk-weighted capital ratio; Ratio in 2016 refers to total capital ratio, reported based on Basel III Capital Adequacy Framework adopted since January 2013; Note: HK= Hong Kong,

CN=China, SG= Singapore, UK= United Kingdom, JP=Japan, DE=Germany, ID=Indonesia, KR=South Korea, LU= Luxembourg

Note: NIEs include Hong Kong, Chinese Taipei and Korea

37

45

17

2017

28

29

1311

19

2017

7.6

2016 2017

6.5

Wage Growth

(%)


17 August 2018

Key Highlights on Box and Feature Articles

- Divergence of Economic Performance and Public Sentiments

- Transforming Mobile Phones into E-wallets in Malaysia

25


17 August 2018

Divergence of Economic Performance and

Public Sentiments

26


17 August 2018

34

19

Several factors weigh on public sentiments despite strong

macroeconomic growth

27

12.0

5.8

2.4 2.3

2009-2014 2014-2016

54

56

62

2015 2016 2017

Uneven distribution of income Slower income growth amid sustained cost of living

Negative perceptions of corruptionHigh debt and lower housing affordability

80.5 86.8 88.3

4.0

5.1 5.0

0

2

4

6

60

90

120

2012 2014 2016

HH Debt Median House Price to Income Ratio

Household Debt (% of GDP) vs. House Price to Income Ratio Malaysia’s Corruption Perceptions Index, Rank

Worsening

perception

Distribution of Households by Income Category (2016)

2016

> RM10K

RM5K – RM10K

47%of HH earns

less than RM5,000

Source: National Property Information Centre (NAPIC), Department of Statistics, Malaysia, Bank Negara Malaysia and staff estimates

Average Growth in B40 HH Income and Cost of Living

Cost of

Living

Income

Affordable house ratio: 3.0


17 August 2018

Transforming Mobile Phones into E-wallets in Malaysia

28


17 August 2018

Key initiatives to transform mobile phones into e-wallets in Malaysia

ICTF

Fair and open access to

shared payment

infrastructure

Interoperability of

electronic fund transfer

services, including

mobile payments

Market conduct

requirements and

safeguards to protect

customers and

merchants

1 2 3

Interoperable Credit Transfer Framework (ICTF)

National Addressing Database (NAD)

Mobile phone numbers

National Registration Identity Card

(NRIC)

Business registration numbers

Common QR code

29


17 August 2018

FEA* enhanced to give greater flexibility to businesses while

ensuring financial stability in times of global uncertainty

30

*FEA: Foreign Exchange Administration

**AOO: Appointed overseas office

Removal of export

reconversion requirement

1

Flexibility to hedge foreign

currency obligations

2

Offering of ringgit interest

rate derivatives by AOO**

3

Exporters can automatically

sweep foreign currency export

proceeds into foreign currency

accounts upon establishing their

6 months obligations with

onshore banks

(Previously subject to convert and

reconvert requirement)

Residents can obtain approval to

hedge FC exposures on:

• obligations beyond 6 months

• invoices arising from payment

of goods and services

between residents

(Previously prohibited)

Nonresidents can trade in

ringgit interest rate derivatives

via AOO

(Previously prohibited)

Benefit

Allow businesses greater flexibility in

managing export proceeds

Benefit

Allow residents to hedge foreign

currency (FC) payment obligation

Benefit

Allow non-residents wider access to

onshore financial products


17 August 2018

Q & A

31


17 August 2018

The Malaysian economy grew by 4.5% in the second quarter

Real GDP

(Annual change, %)

Share, %

(2017)

2017 2018

4Q 1Q 2Q

Services 54.5 6.2 6.5 6.5

Manufacturing 23.0 5.4 5.3 4.9

Mining and

Quarrying8.4 -0.3 0.1 -2.2

Agriculture 8.2 10.7 2.8 -2.5

Construction 4.6 5.9 4.9 4.7

Real GDP 1002 5.9 5.4 4.5

Note: 2 Numbers do not add up due to rounding and exclusion of import duties

component


Add. Info

1

Note: 1 Numbers do not add up due to rounding


Real GDP

(Annual change, %)

Share, %

(2017)

2017 2018

4Q 1Q 2Q

Domestic demand

(excluding stocks)92.2 6.2 4.1 5.6

Private Sector 71.1 7.4 5.2 7.5

Consumption 53.7 7.0 6.9 8.0

Investment 17.4 9.2 0.5 6.1

Public Sector 21.0 3.4 -0.1 -1.4

Consumption 13.0 6.8 0.4 3.1

Investment 8.0 -1.4 -1.0 -9.8

Net exports of goods

and services7.7 2.3 62.4 1.7

Exports 72.8 6.7 3.7 2.0

Imports 65.1 7.3 -2.0 2.1

Change in stocks

(RM billion)0.0 1.7 -5.0 -2.8

GDP (y-o-y) 1001 5.9 5.4 4.5

GDP (q-o-q growth,

seasonally adjusted)- 1.0 1.4 0.3

32


17 August 2018

Direct impact from current trade actions are limited given the

low product coverage but downside risks remain

Source: USTR, MOFCOM, Global Trade Atlas

% share

88.9% 92.5%

8.8% 4.0%2.2 3.2

0.2 0.2

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

PR China's total exports US' total exports

Aluminium and Steel

USD50bn Tariffs

USD200bn Tariffs (Proposed)

Others

• Products affected by new tariffs comprise a

small portion of US’ and PR China’s exports

– Current trade action affects <4% of the

countries’ total exports

• Greater downside risks arising from potential

expansion of US’ tariffed products:

– E.g. Blanket tariffs on automobiles

• Nevertheless, impact of current trade tension

to Malaysia is expected to remain limited

– Diversified market for Malaysian exports

– Highly varied export product range

Breakdown of Exports Affected by New Trade Tariffs

11.2% 7.4%

Add. Info

2

33


17 August 2018

Announced deferment of mega projects will have a manageable

impact in the immediate term

2016 - 2022

RAPIDRM81 bn

MRT 2RM32 bn

LRT 3RM17 bn

2018 - 2024

MRT 3RM50 bn

HSRRM70 bn

ECRLRM55 bn

2018 2019 2020 2025

2015 - 2019

Add. Info

3

34

Impact to growth is expected to be

manageable as:

Projects are in early stages of

construction or have yet to commence

Long development duration limits

impact in any single year

Lower imports of construction-

related material and services

Negligible impact on domestic labour

markets

Notwithstanding announced deferments, ongoing

projects will continue to support growth

2019 - 2026

2019 - 2026

Ongoing Deferred

2018 - 2024


17 August 2018

-19.1

-28.6

-10.1-12.4

-6.7

-38.7

-3.3 -3.3

-9.7

-29.6

-6.5 -5.7

4.7 5.4 4.5 4.5

-44

-39

-34

-29

-24

-19

-14

-9

-4

1

6

Taper Tantrum(22 May - 28 Aug 13)

Oil Price Decline(29 Aug 14 - 29 Sept 15)

US Election(9 Nov 16 - 4 Jan 17)

Current (Since April)

NR Portfolio Flows (USD bn) Change in Reserves (USD bn) Change in MYR/USD (%) GDP Growth (%)

Note: Current data for reserves is as at end -July 2018; MYR/USD as at 14 August 2018; NR portfolio flows as at 13 August 2018

Source: BNM

Malaysia has shown the ability to manage episodes of

financial shocks

Malaysia’s ability to absorb the volatility of capital flows and the effects on financial market is

supported by exchange rate flexibility, ample international reserve buffers, well-developed financial

markets and resilient banking system

NR Portfolio Flows, Reserves, Ringgit Performance, and GDP Growth during Outflow Periods

Hidden

USD bn / %

Add. Info

4

35


17 August 2018

Significant portfolio investment outflows in 2Q 2018 driven by

external factors

Portfolio investment outflows were driven

mainly by non-residents


RM billion

-50

-40

-30

-20

-10

0

10

20

30

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

2016 2017 2018

• In line with regional trend, non-resident outflows

were driven primarily by:

– Strengthening US dollar;

– Concerns over faster-than-expected US

interest rate normalisation; and

– Flight to safety following further escalation

of global trade tensions.

• Moving forward, financial market sentiments are

expected to improve with greater certainty in

domestic policy.

External factors played a key role

Portfolio Investments

Residents

Non-residents

Net portfolio

investment

Add. Info

5

36


17 August 2018

Current account surplus narrowed in 2Q 2018

RM billion2017 2018

4Q 1Q 2Q 1H

Current Account 13.9 15.0 3.9 18.9

Goods 34.1 35.7 26.1 61.7

Exports 211.4 202.1 202.4 404.5

Imports 177.3 166.4 176.4 342.8

Services -7.0 -5.8 -6.2 -12.0

Receipts 40.9 38.3 39.0 77.3

Payments 47.9 44.2 45.2 89.4

Primary income -8.4 -10.2 -11.2 -22.5

Receipts 13.8 13.0 13.3 26.3

Payments 22.2 23.2 24.5 47.7

Secondary income -4.8 -4.7 -4.7 -9.4

Receipts 3.9 3.7 3.6 7.3

Payments 8.6 8.4 8.3 16.7


Narrower CA surplus due mainly to lower goods

surplus and higher primary income deficit…… driven by a rebound in goods imports and

higher income accrued to foreign investors

Lower goods surplus

• Rebound in goods imports, following

stronger domestic demand

• Lower commodity surplus

(e.g. LNG and CPO)

Higher primary income deficit

• Higher dividends earned by foreign

portfolio investors

37

Add. Info

6


17 August 2018

Natural gas and crude palm oil production declined in 2Q 2018

Weaker natural gas output in 2Q 2018

due to supply outages

*Natural gas accounts for 46% of mining sector’s VA


*CPO accounts for 47% of agriculture sector’s VA


Annual change (%) Annual change (%)

CPO output contracted in 2Q 2018, on account

of production constraints and adverse weather

Natural Gas* Industrial Production Index Crude Palm Oil* Industrial Production Index

0.7

-7.8

-12.0

-30

-20

-10

0

10

20

30

Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18

-0.4

-4.8

-15.7

-30

-20

-10

0

10

20

30

Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18

Add. Info

7

38


17 August 2018

Economic conditions are significantly stronger now,

compared to 2016

Add. Info

8

39

3.8

4.9

3.9

5.1

GlobalGDP

GlobalTrade

2017 2018f

132.9

4Q-17 1Q-18 2Q-18

Consumer sentiments

highest in two decades

Points

Global growth highest

since 2011

%, yoy

8.0

1Q-16 4Q-16 3Q-17 2Q-18

Lower growth in 2Q 2018 is due to sector-specific

disruptions, amid strong fundamentals

2.2

1Q-16 4Q-16 3Q-17 2Q-18

Total investment

%, yoy

Private consumption

%, yoy

Malaysia recorded slower growth in 2016 due to external

and domestic headwinds facing the economy

Domestic conditions

Higher cost of living, given price adjustments

Weak consumer and business sentiments

Heightened financial market uncertainty

109.7

35.1

1Q 14 4Q 14 3Q 15 2Q 16

Global growth

%, yoy

Brent crude oil prices

USD/b

2010 2013 2016

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