Challenging Times: Challenging Times: Impacts & IssuesImpacts & Issues

10 Aug 200910 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

• 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.

East Asia : Quarterly GDP Growth (%)

% y-o-y 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09

China 10.6 10.1 9.0 6.8 6.1 7.9

India 8.8 7.9 7.7 5.8 5.8

Hong Kong 7.1 4.1 1.5 -2.6 -7.8

Singapore 7.0 2.5 0.0 -4.2 -9.6 -3.7

Korea 5.8 4.3 3.1 -3.4 -4.2 -2.5

Taiwan 6.3 4.6 -1.0 -8.6 -10.2

Malaysia 7.1 6.6 4.8 0.1 -6.2

Indonesia 6.4 6.4 6.4 5.2 4.4

Thailand 6.1 5.3 3.9 -4.2 -7.1

Philippines 4.7 4.0 4.3 2.7 0.4

Rocky Road to Recovery

Recovery will be bumpy due to:

• liquidity trap

• fiscal fatigue

• exchange rates going nowhere

Malaysia: Comparing Crises

1998 Crisis Current Crisis

Origin of crisis Home-grown/ Regional

Externally induced/ Global

Recovery trend V-shape U-shape

Export performance growing falling sharply

Commodity prices high relatively lower

Bal. of Payments deficit surplus

Foreign Reserves low high

Banking sector weak much stronger

Stock market collapsed robust

FDI flows lacklustre worse

Unemployment mild high

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

Impact of the global crisis on Malaysia

Malaysia: Total Exports and Industrial Production (%yoy)

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

J08 F M A M J J A S O N D J09 F M A M

Exports Industrial Production

Malaysia: GDP Growth by Sector (%yoy)

5.5 5.76.7 7.3 7.4 6.7

4.7

0.1

-6.2

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09

RGDP Agriculture Mining Manufacturing Construction Services

%yoy

-17.6%

-5.2%

-4.3%

-0.1%

0.6%

Malaysia: Exports & Imports

-40

-30

-20

-10

0

10

20

30

Jan-

07Fe

b-07

Mar

-07

Apr

-07

May

-07

Jun-

07Ju

l-07

Aug

-07

Sep

-07

Oct

-07

Nov

-07

Dec

-07

Jan-

08Fe

b-08

Mar

-08

Apr

-08

May

-08

Jun-

08Ju

l-08

Aug

-08

Sep

-08

Oct

-08

Nov

-08

Dec

-08

Jan-

09Fe

b-09

Mar

-09

Apr

-09

May

-09

Trade Balance(RM bil) Export(%yoy) Import(%yoy)

% yoy

Export Growth by Destination

Source: DOS

-50

-40

-30

-20

-10

0

10

20

30

40

50

601Q

06

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

Apr

-09

May

-09

Jun-

09

Japan% China% USA% EU%

% yoy

CAB, Overall Balance & Foreign Reserves

-75.0

-50.0

-25.0

0.0

25.0

50.0

75.0

100.0

125.0

150.0

1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09

Overall Bal (RM bil) CAB (RM bil) Reserves (US$ bil)

Malaysia: Capital Flows (RM bill.)

-60.0

-50.0

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09

Reverse Investments FDIs Portfolio flows

RM billion

MIDA’s Foreign Manufacturing Approvals

0

5

10

15

20RM bill

Foreign approvals

Jan-May'09 Jan-May'08

• FDI approvals fell

76.4% in Jan-May’09

to a value of RM4.2

bill (Jan-May’08:

RM17.7 bill)

MIDA’s Domestic Approvals

domestic approvals down 42.7% to RM4.8 bill in Jan-May’09 (Jan-May’08: RM8.4 bill)

0

1

2

3

4

5

6

7

8

9

Domestic Approvals

Jan-May'09 Jan-May'08

RM bill.

Malaysia:Industrial Production Index (IPI)

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0Ja

n-07 Mar

May Ju

l

Sep

Nov

Jan-

08 Mar

May Ju

l

Sep

Nov

Jan-

09 Mar

May

IPI Mining Electricity Manuf

% yoy

Malaysia: Foreign Reserves (US$ bill.)

80

85

90

95

100

105

110

115

120

125

130

Jun

-07

Jul-

07

Au

g-0

7

Sep

-07

Oct

-07

No

v-07

Dec

-07

Jan

-08

Feb

-08

Mar

-08

Ap

r-08

May

-08

Jun

-08

Jul-

08

Au

g-0

8

Sep

-08

Oct

-08

No

v-08

Dec

-08

Jan

-09

Feb

-09

Mar

-09

Ap

r-09

May

-09

Jun

-09

7.0

7.5

8.0

8.5

9.0

9.5

10.0

Reserves (US$ bill) Months of Imports

US$ bil months

Stock Market Indices (Jan’08=1.00)

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1.10

02-J

an-0

8

01-F

eb-0

8

02-M

ar-0

8

01-A

pr-

08

01-M

ay-0

8

31-M

ay-0

8

30-J

un-

08

30-J

ul-

08

29-A

ug

-08

28-S

ep-0

8

28-O

ct-0

8

27-N

ov-

08

27-D

ec-0

8

26-J

an-0

9

25-F

eb-0

9

27-M

ar-0

9

26-A

pr-

09

26-M

ay-0

9

25-J

un-

09

25-J

ul-

09

KLCI Sing TI KOSPI Hang Seng Jakarta Shanghai

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

71.4

49.445.3

39.736.8

34.631.4

16.9

1.50.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Indon JCI PhilipPCOMP

Sing STI Thai SET HongKong HS

KoreaKOSPI

Mal KLCI Nikkei225

DowJones Ind

Ave

% chg

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

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1.80

31/1

2/07

24/1

/08

19/2

/08

11/3

/08

2/4/

08

23/4

/08

15/5

/08

6/6/

08

27/6

/08

18/7

/08

8/8/

08

29/8

/08

22/9

/08

15/1

0/08

6/11

/08

27/1

1/08

19/1

2/08

14/1

/09

10/2

/09

3/3/

09

25/3

/09

15/4

/09

7/5/

09

28/5

/09

18/6

/09

9/7/

09

30/7

/09

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1.80

RM SGD THB100 PHP100 KRW100 IDR100

regional currencies depreciate

against US$

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

9.8

8.0

2.72.2

1.6

-2.6-1.6-1.5

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Indonrupiah

Koreanwon

euro Thai baht Sing $ Philippeso

Mal RM Jap yen

appreciate against US$ (% chg)

Malaysia: Leading Index & GDP Growth

-15

-10

-5

0

5

10

15

20

1Q

96

1Q

97

1Q

98

1Q

99

1Q

00

1Q

01

1Q

02

1Q

03

1Q

04

1Q

05

1Q

06

1Q

07

1Q

08

1Q

09

RGDP(%yoy) Leading Index Coincident Index

%change yoy

Mini Budget 2009 (RM60 bil.)

25%

41%

17%

12%

5%

Fiscal injection Guarantee funds Equity investment PFI/ Off-budget Tax initiatives

RM15 b

RM25 b

RM10 b

RM7 b RM3 b

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

Monetary Indicators

0

5

10

15

20

25

Ja

n-0

6 F M A M J J A S O N DJ

an

-07 F M A M J J A S O N D

Ja

n-0

8 F M A M J J A S O N DJ

09 F M A M J

M1 M2 M3

Slower growth in M1, M2 and M3

Source: BNM

Real Interest Rate (%)

-8

-6

-4

-2

0

2

4

6

8

10

Ja

n-0

6

Ma

r

Ma

y

Ju

l

Se

p

No

v

Ja

n-0

7

Ma

r

Ma

y

Ju

l

Se

p

No

v

Ja

n-0

8

Ma

r

Ma

y

Ju

l

Se

p

No

v

J0

9

Ma

r

Ma

y

Real Interest Rate Inflation 3m Fixed Dep

Inflation

3mFD

Malaysia: Loans Approved & Disbursed (%yoy)

-60

-40

-20

0

20

40

60

80

100

Ja

n-0

6

Ma

r

Ma

y

Ju

l

Se

p

No

v

Ja

n-0

7

Ma

r

Ma

y

Ju

l

Se

p

No

v

Ja

n-0

8

Ma

r

Ma

y

Ju

l

Se

p

No

v

Ja

n-0

9

Ma

r

Ma

y

% y-o-y

Loans disbursed Loans approved

NPLs/Total Loans Ratio& Capital Adequacy Ratio

0

2

4

6

8

10

12

14

16

Ja

n-0

5

Ap

r

Ju

l

Oc

t

Ja

n-0

6

Ap

r

Ju

l

Oc

t

Ja

n-0

7

Ap

r

Ju

l

Oc

t

Ja

n-0

8

Ap

r

Ju

l

Oc

t

Ja

n-0

9

Ap

r

0

2

4

6

8

10

12

14

16

RWCR 3-month arrears 6-month arrears

per cent (%)

… and inflation is falling

-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

J08 F M A M J J A S O N D J09 F M A M J

CPI Core CPI Food PPI

%yoy

Malaysia: Retrenchment

0

2,000

4,000

6,000

8,000

10,000

12,0001Q

05

2Q05

3Q05

4Q05

1Q06

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

Total Retrenchment Agriculture

Mining Manufacturing

Construction Services

No of Workers

Source: Ministry of Human Resource

Federal Government Fiscal Balance (% of GDP)

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Fiscal Balance (% of GDP) GDP growth%

per cent (%)

Federal Government Debt (% of GDP)

0

10

20

30

40

50

60

70

80

90

100

110

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Fed Gov Debt (Total) Domestic Foreign

% of GDP

Federal Gov’t Revenue (% share)

Oil + Gas rev (est)41%

Corporate taxes24%

Personal9%

Other revenue26%Oil + Gas rev (est)

16%

Corporate taxes23%

Personal12%

Other revenue49%

1995 (RM51 b) 2008 (RM160 b)

Fiscal Deficit Scenario (RM mil)

-200,000

-150,000

-100,000

-50,000

0

50,000

100,000

150,000

200,000

250,000

300,00020

05

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Surplus/Def Revenue Oper. Expen. Dev. Expen.Trend(Rev) Trend(Op. Exp.) Trend(Dev. Exp.)

RM mill

-7.6%-9.5%

-11%

-15.2%

MIER 2Q09 INDICESMIER 2Q09 INDICES

Business Conditions Indexa glimmer of hope

40

50

60

70

80

90

100

110

120

130

2002

:1Q 2 3 4

2003

:1Q 2 3 4

2004

:1Q 2 3 4

2005

:1Q 2 3 4

2006

:1Q 2 3 4

2007

:1Q 2 3 4

2008

:1Q 2 3 4

2009

:1Q 2

• 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

50

60

70

80

90

100

110

120

130

140

150

1Q

03 2 3 4

1Q

04 2 3 4

1Q

05 2 3 4

1Q

06 2 3 4

1Q

07 2 3 4

1Q

08 2 3 4

1Q

09 2

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

CSICSI

CEO Index & GDP Growth

-10

-8

-6

-4

-2

0

2

4

6

8

10

'04 '05 '06 '07 '08 '09

0

20

40

60

80

100

120

140

GDP% CEO-INDEX

GDP% CEO Index

MIER’s Sectoral Indices & GDP%

0

20

40

60

80

100

120

140

160

180

01:Q

2 Q3

Q4

02:Q

1 Q2

Q3

Q4

03:Q

1 Q2

Q3

Q4

04:Q

1 Q2

Q3

Q4

05:Q

1 Q2

Q3

Q4

06:Q

1 Q2

Q3

Q4

07:Q

1 Q2

Q3

Q4

08:Q

1 Q2

Q3

Q4

09:Q

1 Q2

-13

-11

-9

-7

-5

-3

-1

1

3

5

7

9

GDP%(RHS) Auto Index(LHS) Retail Trade Index(LHS)

Res. Property Index(LHS) Tourism Index(LHS)

GDP%Index

MIER ForecastMIER Forecast

World Economy

3.64.1 4.2

2.83.7

4.7

2.22.8

3.6

4.9 4.55.1 5.0

1.9

-2.9

2.0

-8

-6

-4

-2

0

2

4

6

95 96 97 98 99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

% g

row

th

World GDP USGDP% EU-GDP% JapGDP%

Source: IMF Jul’09, World Bank & MIER

Asian Economies

-8-6-4-202468

101214

95 96 97 98 99 '00

'01

'02

'03

'04

'05

'06

'07

'08

'09f

'10f

% g

row

th

China Korea Singapore

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

-15

-10

-5

0

5

10

Agriculture Mining Manuf Construction Services

% growth

'08 '09f '10f

Source: DOSM, MIER

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%)

2.8

-8

-6

-4

-2

0

2

4

6

8

10

98 99 00 01 02 03 04 05 06 07 08 09f 10f

% chg

-7.4

6.1

8.9

0.5

5.45.8

6.8

5.35.8

6.3

4.6

-4.2

Currency volatilityCurrency volatility

Downside Risks

DownsiDownside Risksde Risks

Politicalclimate

Politicalclimate

Wideningfiscal deficit

Wideningfiscal deficit

Rise of protectionism

Rise of protectionism

Protractedglobal recession

Protractedglobal recession H1N1H1N1

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

Mitigating Factors

• East Asian vibrancy

• fiscal stimulus & liberal investment policies

• policy reforms

• sound banking sector

• potential strength of ringgit

• comfortable reserves

• high savings rate