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Challenging Times: Impacts & Issues

Challenging Times: Impacts & Issues. 10 Aug 2009. Overview. The Crisis Easing, But Still On. recession easing in the US (%GDP in 2Q09: -1.0%, from 1Q09: -6.4%) 15 EU countries in recession, -4.9% in 1Q09 after -1.5% in 4Q08, worst since 1995; Germany and UK badly hit

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Challenging Times: Impacts & Issues

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  1. Challenging Times: Impacts & Issues 10 Aug 2009

  2. Overview

  3. The Crisis Easing, But Still On • recession easing in the US (%GDP in 2Q09: -1.0%, from 1Q09: -6.4%) • 15 EU countries in recession, -4.9% in 1Q09 after -1.5% in 4Q08, worst since 1995; Germany and UK badly hit • Japan slid -14.2% (annualised) in 1Q09, from -12.1% in 4Q08, worst drop since the 70s • NIEs in recession but receding; Singapore (2Q09: -3.7%); Korea (2Q09: -2.5%) • Growth stalling in Australia (1Q09: 0.4%) and New Zealand (1Q09: -2.2%) • China registered a 7.9% growth in 2Q09.

  4. East Asia : Quarterly GDP Growth(%)

  5. Rocky Road to Recovery Recovery will be bumpy due to: • liquidity trap • fiscal fatigue • exchange rates going nowhere

  6. Malaysia: Comparing Crises

  7. Malaysia’s Response • Monetary Policy - interest rate cuts/ lower reserve ratio • Fiscal Policy - 1st stimulus package (RM7 bil in Nov’08) - 2nd stimulus package (RM60b in Mar’09) • Liberalisation of 27 services sub-sectors, e.g. • computer & related services, health & social services, tourism services, transport, recreational, business services & shipping. • NEP reforms/ Ekuinas

  8. Impact of the global crisis on Malaysia

  9. Malaysia: GDP Growth by Sector(%yoy)

  10. Malaysia: Exports & Imports

  11. Export Growth by Destination Source: DOS

  12. CAB, Overall Balance & Foreign Reserves

  13. Malaysia: Capital Flows (RM bill.)

  14. MIDA’s Foreign Manufacturing Approvals • FDI approvals fell 76.4% in Jan-May’09 to a value of RM4.2 bill (Jan-May’08: RM17.7 bill)

  15. MIDA’s Domestic Approvals RM bill. • domestic approvals down 42.7% to RM4.8 bill in Jan-May’09 (Jan-May’08: RM8.4 bill)

  16. Malaysia:Industrial Production Index(IPI)

  17. Malaysia: Foreign Reserves (US$ bill.)

  18. Stock Market Indices (Jan’08=1.00)

  19. Stock Market Indices (% chg 2 Jan’09 – 3 Aug’09)

  20. Regional Currencies vs. US$ (Jan’08=1.00)

  21. Regional Currencies vs. US$ (% chg 2 Jan’09 – 3 Aug’09)

  22. Malaysia: Leading Index & GDP Growth %change yoy

  23. Mini Budget 2009 (RM60 bil.)

  24. Why the impact of the fiscal stimulus will likely be limited • small size of fiscal spending • slow implementation • lack of fiscal discipline • lack of transparency • consumer cautiousness • small domestic sector • leakages and weak multipliers • likely to kick in towards year-end

  25. Monetary Indicators • Slower growth in M1, M2 and M3 Source: BNM

  26. Real Interest Rate(%) 3mFD Inflation

  27. Malaysia: Loans Approved & Disbursed (%yoy)

  28. NPLs/Total Loans Ratio& Capital Adequacy Ratio

  29. … and inflation is falling

  30. Malaysia: Retrenchment Source: Ministry of Human Resource

  31. Federal Government Fiscal Balance(% of GDP)

  32. Federal Government Debt(% of GDP)

  33. Federal Gov’t Revenue (% share) 2008 (RM160 b) 1995 (RM51 b)

  34. Fiscal Deficit Scenario (RM mil)

  35. MIER 2Q09 INDICES

  36. Business Conditions Indexa glimmer of hope • BCI gains 41.1 points q-o-q • All eight sub-indices higher q-o-q • Only exp. production rose y-o-y • Lower inventory levels &wage pressures, increased hirings

  37. Consumer Sentiments Index (CSI)the smiles are back • CSI breaches 100-point threshold level after four consecutive quarters in the red • Jobs and incomes lift consumer spirits, spending plans on again CSI

  38. CEO Index & GDP Growth

  39. MIER’s Sectoral Indices & GDP%

  40. MIER Forecast

  41. World Economy Source: IMF Jul’09, World Bank & MIER

  42. Asian Economies

  43. Malaysia: Growth by Sector • services sector is the critical growth driver • manufacturing sector to contract in ‘09, as export demand falls • stimulus packages and corridor projects to support construction activity Source: DOSM, MIER

  44. Malaysia: Real GDP Growth • Global downturn to adversely affect Malaysia’s GDP growth • Malaysia’s GDP projected to contract by 4.2% in ‘09, but to recover gradually to 2.8% in ‘09 (‘08: 4.6%)

  45. Downside Risks Protracted global recession H1N1 Rise of protectionism Political climate Downside Risks Currency volatility Widening fiscal deficit

  46. Major Concerns • depressed external demand • “Double-dip” recovery • lethargic FDI inflows • H1N1 • swelling fiscal deficit • over-dependence on oil revenue • liquidity trap • asset bubble • ringgit weakness • weak commodity prices

  47. Mitigating Factors • East Asian vibrancy • fiscal stimulus & liberal investment policies • policy reforms • sound banking sector • potential strength of ringgit • comfortable reserves • high savings rate

  48. Thank You

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