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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
2Q 2018 BNM Quarterly Bulletin
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
2Q 2018 BNM Quarterly Bulletin
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
2Q 2018 BNM Quarterly Bulletin
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
2Q 2018 BNM Quarterly Bulletin
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
Source: Department of Statistics, Malaysia
2Q 2018 BNM Quarterly Bulletin
17 August 2018
Malaysia: Slower growth of 4.5% in 2Q 2018
6
Source: Department of Statistics, Malaysia
-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
2Q 2018 BNM Quarterly Bulletin
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
Source: Department of Statistics, Malaysia
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
2Q 2018 BNM Quarterly Bulletin
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
Source: Department of Statistics, Malaysia
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
2Q 2018 BNM Quarterly Bulletin
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
2Q 2018 BNM Quarterly Bulletin
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.
Source: 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)
2Q 2018 BNM Quarterly Bulletin
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
Source: Department of Statistics, Malaysia
11
2Q 2018 BNM Quarterly Bulletin
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
2Q 2018 BNM Quarterly Bulletin
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
2Q 2018 BNM Quarterly Bulletin
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
Source: Bank Negara Malaysia
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
2Q 2018 BNM Quarterly Bulletin
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
2Q 2018 BNM Quarterly Bulletin
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
Source: Bank Negara Malaysia
%
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
2Q 2018 BNM Quarterly Bulletin
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
Source: Bank Negara Malaysia
17
2Q 2018 BNM Quarterly Bulletin
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
2Q 2018 BNM Quarterly Bulletin
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
Source: Bank Negara Malaysia
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
2Q 2018 BNM Quarterly Bulletin
17 August 2018
External debt remains manageable
Source: Department of Statistics, Malaysia and Bank Negara Malaysia
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
2Q 2018 BNM Quarterly Bulletin
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
Source: Department of Statistics, Malaysia and Bank Negara Malaysia
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%
2Q 2018 BNM Quarterly Bulletin
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
2Q 2018 BNM Quarterly Bulletin
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
2Q 2018 BNM Quarterly Bulletin
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
(%)
2Q 2018 BNM Quarterly Bulletin
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
2Q 2018 BNM Quarterly Bulletin
17 August 2018
Divergence of Economic Performance and
Public Sentiments
26
2Q 2018 BNM Quarterly Bulletin
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
2Q 2018 BNM Quarterly Bulletin
17 August 2018
Transforming Mobile Phones into E-wallets in Malaysia
28
2Q 2018 BNM Quarterly Bulletin
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
2Q 2018 BNM Quarterly Bulletin
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
2Q 2018 BNM Quarterly Bulletin
17 August 2018
Q & A
31
2Q 2018 BNM Quarterly Bulletin
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
Source: Department of Statistics, Malaysia
Add. Info
1
Note: 1 Numbers do not add up due to rounding
Source: Department of Statistics, Malaysia
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
2Q 2018 BNM Quarterly Bulletin
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
2Q 2018 BNM Quarterly Bulletin
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
2Q 2018 BNM Quarterly Bulletin
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
2Q 2018 BNM Quarterly Bulletin
17 August 2018
Significant portfolio investment outflows in 2Q 2018 driven by
external factors
Portfolio investment outflows were driven
mainly by non-residents
Source: Department of Statistics, Malaysia and Bank Negara Malaysia
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
2Q 2018 BNM Quarterly Bulletin
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
Source: Department of Statistics, Malaysia
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
2Q 2018 BNM Quarterly Bulletin
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
Source: Department of Statistics, Malaysia
*CPO accounts for 47% of agriculture sector’s VA
Source: Department of Statistics, Malaysia
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
2Q 2018 BNM Quarterly Bulletin
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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