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Economic Crisis Overview: Easing Recession Impacts, Challenges, and Malaysia's Response

As of August 10, 2009, the global economic crisis shows signs of easing, with the US experiencing a GDP contraction of -1.0% in Q2 2009, down from -6.4% in Q1. However, many economies, including 15 EU nations and Japan, face severe challenges. Malaysia's response includes monetary and fiscal measures such as interest rate cuts and stimulus packages. Despite adverse factors like liquidity traps and consumer caution, indicators show potential recovery, particularly in the services sector. The path ahead remains complex amid global uncertainties.

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Economic Crisis Overview: Easing Recession Impacts, Challenges, and Malaysia's Response

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Presentation Transcript

  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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