Wednesday, 20 November 2019, 23 Rabiulawal 1441H Solat Time:

From the Desk of the Chief Economist

GDP growth could moderate to 4.3% in 3Q2019
IPI growth sustained at 1.7% in September
BNM set the OPR for a pause at 3.00%
Exports dropped further by 6.8% in September
US FOMC – instilling monetary stimulus
Modest CPI print in September
Budget 2020 – spurring domestic growth amidst fiscal constraint
Budget 2020 preview: Government to play more active role
Exports fell unexpectedly in August by 0.8%
CPI appreciated by 1.5% in August
The US Fed cut rates again by 25 basis points
OPR stays at 3.00%. BNM is not in a hurry to cut rates
Lower IPI growth in July
Exports growth surprised on the upside in July
Better-than-expected 2Q2019 GDP growth but…
Preview for 2Q2019 GDP – expect growth to be sustained at 4.5%
IPI growth fairly stable at 3.9% in June
Exports shrunk 3.1% in June
US FOMC – insuring against downside risk
Economic outlook for 2H2019 – on high alert
Welcome back inflation!
IPI maintained at 4.0% in May. Cautious view advised
OPR left at 3.00% but the accompanying statement is cautious
Exports still decent in May
CPI maintained at 0.2% in May
The US Fed has become more dovish
IPI growth accelerated to 4.0% in April
Exports rebounded to 1.1% in April
Softer CPI at 0.2% in April
Malaysia’s 1Q2019 GDP at 4.5%
1Q2019 GDP preview – Moderate growth to prevail
IPI higher by 3.1% in March
OPR reduced to 3.00%
Exports edged down by 0.5% in March
Inflation is back again. But only at 0.2% in March
IPI in February – shifting into lower gear
Exports fell 5.3% in February. Surprised on the downside
BNM Annual Report for 2018 – easing monetary policy is warranted
Second month of deflation…
Manufacturer’s sentiment weakened
US FFR kept at 2.25% – 2.50% – status quo for now
IPI grew 3.2% in January
OPR kept at 3.25% but MPC members leaned on the softer side
Exports grew more than expected by 3.1%
Deflation seen in January at -0.7%
Malaysia’s GDP grew 4.7% in 4Q2018
IPI accelerated to 3.4% in December 2018
US FOMC – patience is a virtue
Export growth jumped 4.8% in December
Inflation remain subdued at 0.2% in December
IPI grew moderately at 2.5% in November
Slower exports growth at 1.6% in November



Economic Outlook 2019 – “The Inconvenient Truth”
Inflation rate rises modestly in November
IPI boosted at 4.2% in October
Exports surged “beyond expectation” at 17.7% in October
Rising inflation rate – slowly but surely
3Q2018 GDP – saved by the consumers
IPI growth: fairly modest in September
OPR at 3.25%, BNM increasingly dovish
Export rebounded 6.7% in September
Budget 2019…it make sense!
Monthly Economic Update October 2018
Budget 2019 preview – making sure the house in order
Benign inflation rate in September
Mid-Term Review of 11th Malaysian Plan
IPI grew moderately at 2.2% in August
Exports fell 0.3% in August
Household Debt & Government Civil Servant Finances
Monthly Economic Update September 2018
Inflation rate diminished to 0.2% in August
IPI grew 2.6% in July, momentum slowing
Exports grew 9.4% in July
BNM maintained OPR at 3.25%
Monthly Economic Update August 2018
A slight uptick in CPI but still at sub 1%
2Q2018 GDP – below trend growth
Turkish Lira Fallout – a reason to be pessimistic
Modest gain in June IPI
Exports grew lower than expected in June
US Federal Fund Rate maintained at 2%
Monthly Economic Update July 2018
Inflation rate diminished to 0.8% in June
IPI expanded moderately by 3% in May
Exports growth moderated to 3.4% in May
Economic Outlook for 2H2018 – Heightened Uncertainties
US Federal Fund Rate is now at 2.00%
IPI accelerated to 4.6% in April
Exports growth jumped 14% in April
Inflation rate contained at 1.4% in April
1Q2018 GDP growth at 5.4%
Zero-rated GST: Positive for consumers
GE14 – impact to the economy
Exports growth rebounded to 2.2% in March
Lower inflationary pressures in March
Trade friction but not collapsing demands
BNM Annual Report 2017 – Reasonably optimistic
FOMC decided to raise FFR by 25 basis points
IPI growth stabilised at 3.0% in January
2017 GDP accelerated to 5.9%
IPI accelerated to 4.5% in 2017
Malaysia’s export growth at record high in 2017
Monetary Indicators & Banking Statistics
The BNM has spoken: 25 bps OPR hike
Automotive Industries – Selective Markets
Sensing the ringgit
IPI accelerated to 5.0% in November
Exports growth moderated slightly


Economic Outlook 2018 – Guarded Optimism
Inflation rate moderated further in November
US Fed raises its rates the third time
Exports sustained double digit growth for four consecutive months
3Q2017 GDP at 6.2% – higher than expected
BNM – contemplating to review the degree of policy accommodation
IPI growth moderated in September but still robust in 3Q2017
Budget 2018 – a reasonable budget
September’s inflation accelerated to 4.3%
Budget 2018 Preview – government can spend more…
Production activities accelerated further
US Federal Fund Rate will be higher next year
Kadar inflasi meningkat kepada 3.7% pada bulan Ogos
OPR remains unchanged at 3.00%
Exports rebounded 30.9% in July
Inflation rate at 3.2% in July
GDP growth surprised on the upside in 2Q2017
IPI growth moderated to 4.0% in June
Export growth softened in June
Inflation rate moderated further in June
OPR stays at 3.00%, BNM gained confidence
Manufacturing output accelerated further
Exports growth surged 32.5% in May
Economic Outlook for 2H2017 – Cautiously Optimistic
Inflation rates moderated to 3.9% in May
US Fed raised rates by 25 basis points
IPI still decent despite slower growth
Exports growth maintained at double digit
GDP surged 5.6% in 1Q2017
Inflation rate moderated to 4.4% in April
Production activities sustained in 1Q2017
March exports exceed estimates
Inflation rate at the highest since Dec 08
Export growth surged 26.5% in February
Inflation rate rose 4.5% in February
BNM Annual Report 2016
US economy – feels like rate cuts
OPR remain unchanged at 3.00%
Rising inflation rate
4Q2016 GDP came in at 4.5%
IPI growth is strong in 4Q2016
Export growth ended on high note in December
CPI sustained at 1.8% in December
IPI growth accelerated in November
Export rebounded to 7.8% in November


Economic Outlook 2017 – Maintain Cautious
CPI moderated to 1.4% in October
OPR stays at 3.00%
3Q2016 GDP – Higher Than Expected
US Presidential Election 2016
Budget 2017 – optimism amidst uncertainty
IPI increased by 4.9% in August
Budget 2017 Preview: A Delicate Balancing Act
Malaysia’s exports grew 1.5% in August
US Fed kept rates unchanged between 0.25% and 0.50%
Industrial Production Index (IPI) softened to 4.1% in July
Export fell 5.3% in July
BNM kept OPR unchanged at 3.00%
CPI grew by 1.1% In July
IPI grew more than expected in June
Export grew higher than expected in June
Monetary aggregates and banking statistics in June
Inflation rate moderated to 1.6% in June
Economic Outlook for 2H2016 – Brace for impact
Its official, OPR now at 3.00%
Brexit – expect more noises to come
Residential Property: Slower Launches in 1Q 2016
Inflation rate at 2.0% in May
Production growth momentum is slowing
MYR/USD – which direction now?
CPI records slower gain in April
GDP grew unexpectedly higher by 4.2% in 1Q2016
IPI moderated to 2.8% in March
Export grew 0.2% in March
IPI gained 3.9% in February
Export grew more than expected in February
MYR – what has changed?
CPI shot up to 4.2% in February 2016
BNM Annual Report 2015
US FOMC – Tampering the speed of FFR hike
IPI upped 3.2% in January
Export declined 2.8% in January
Inflation rate edged up to 3.5% in January
4Q2015 GDP growth surprise on the upside
IPI expanded 2.7% in December
Export growth skidded to 1.4% in December
Recalibration of Budget 2016 – Striking the right balance
US FOMC – growing pessimism
OPR stays but SRR cut by 50 basis points
Inflation rises 2.7% in December




Economic Outlook 2016 – Stay Cautious
US Fed Fund Rate raised by 25 basis points
Industrial production marginally slower in Oct
Export growth shot up to 16.7% in Oct
CPI stabilised at 2.5% in October
3Q 2015 GDP at 4.7%
Oil & Gas – Petronas 3QFY15 Results
IPI accelerated to 5.1% in September
Export surged 8.8% in September
OPR maintained at 3.25% in 2015
US FOMC meeting – December’s meeting could see a rate hike
Budget 2016 – walking on a tight rope
Sneak Preview – Budget 2016
IPI moderated to 3.0% in August
Augusts’ export rose more than expected
Monetary condition & loan growth in August
CPI moderate slightly to 3.1% in August
BNM’s international reserve assets rose to USD95.3 billion as of 15 September
US Federal Fund Rate kept at 0.25%
OPR maintained at 3.25%
IPI gained 6.1% in July
Export growth remained positive in July
Market volatility…as we see it
2Q2015 GDP grew at 4.9%
IPI moderated to 4.3% in June
Export rebounded in June
IPI up slightly to 4.5% in May
Ringgit and sense
OPR maintained at 3.25%
Economic outlook for 2H2015
Export in May – better than expected
Fitch Ratings – from Negative to Stable Outlook
CPI rose 2.1% in May
US FOMC – indecisiveness could pose risks
Moderate gain in IPI during April
Malaysia’s export declined 8.8% in April
11th Malaysian Plan (2016-2020)
1Q2015 GDP still stable…for now
Higher IPI in March
Inflation rate increased to 0.9% in March
Malaysia’s Residential Property Market – Slow and Steady
IPI gained 5.2% in February
Exports fell again in February
Monetary and Banking Statistics – Feb 2015
A view on weak MYR
Inflation at 0.1% in February
BNM Annual Report 2014 & Financial Stability and Payment Systems Report 2014
Trade Surplus Sustained at RM9 Billion
OPR unchanged at 3.25%
Inflation rate decelerated to 1.0% in January
Export rose further to 2.7% in December
Budget 2015 Revision – A Reality Check
Don’t Forget Consumer Spending
Oil and Economy – Measuring the Relationship
Export Rebounded to 2.1% in November


Despite volatile capital flows and a mixed outlook on the global front, the Malaysian economy continued to perform favourably during the course of 2014. The country recorded Gross Domestic Product (“GDP”) growth of 6.0% in 2014 after delivering 4.7% expansion the previous year. This was mainly supported by a massive 19.7% growth in net exports. Rising demand from developed countries such as the United States (“US”), the European Union (“EU”) and Japan contributed to a large increase in export growth, a sign that Malaysia is benefitting from the recovery of key economies. However, domestic growth was modest due to the ongoing fiscal consolidation exercise which has resulted in moderated public sector spending. Similarly, weaker business sentiments following volatility in the financial and foreign exchange market reduced private investment growth down to 11.0%. Nonetheless, consumer spending was fairly resilient with private consumption posting a stable growth of 7.1% owing to stability in the labour market and continued household income growth.

On the supply side, all economic activities reported stronger growth compared to the previous year. Services sector, which accounted for 55% of Malaysia’s GDP, grew by 6.3% attributed to activities in wholesale & retail trade, transport & storage and finance. All services sub-sectors recorded higher growth during the year. Meanwhile, the manufacturing sector was mainly sustained by export-oriented industries, such as the production of electrical and electronics goods. The construction sector was boosted by the implementation of infrastructure projects as well as the construction of residential and non-residential buildings. Growth in the sector remained at a double digit pace of 11.6%. In the same vein, higher production in crude oil and condensates products led to the strong rebound in mining industry output which rose to 3.1% from 0.7% previously. Meanwhile, agricultural output increased by 2.6%, aided by industrial and food crops.

The heightened growth environment set the stage for the government to address several macroeconomic imbalances. A notable development was the introduction of the managed float system in order to determine domestic petrol fuel prices. Earlier, there had been an increase in electricity tariff in January and a gas price hike for commercial users was announced in mid 2014. The result was tangible. The government’s fiscal deficit fell further to 3.5% of GDP in 2014 from 3.9% previously. In addition, strong economic growth provided the necessary backdrop for the central bank to further normalise the policy rate. To this end, Bank Negara Malaysia (“BNM”) raised the Overnight Policy Rate (“OPR”) by 25 basis points to 3.25% in July last year. Apart from that, Malaysia’s current account surplus balance widened to RM49.5 billion or 4.8% of Gross National Income (“GNI”) in 2014 from RM39.9 billion or 4.2% of GNI recorded in the previous year; signalling a higher savings and investment gap in the economy.

Nevertheless, the Malaysian ringgit was heavily penalised despite the country’s sound economic fundamentals. The possible normalisation of US monetary policy in 2015 has been widely factored in by global investors. This is in view of the country’s sustained economic recovery, particularly in the US labour market space. Additionally, concerns over lower oil prices to oil-exporting countries have been exacerbated by the Organisation of the Petroleum Exporting Countries (“OPEC”) members’ decision to maintain its production quota at 30 million barrels per day in November 2014. This espouses the view that the supply glut in the oil market will likely to continue as OPEC is seen to be taking steps to protect its market share in the global oil market. Such notions have caused outflows of capital to become more apparent in Asian economies as prospect of higher returns in developed economies have become more prevalent. And Malaysia is obviously no exception.

The Malaysian currency has lost its value against the US dollar by 6.3% during the course of 2014 as some of the foreign funds exited the Malaysian financial market. Foreign institutions have generally become a net seller in 2014 at RM6.6 billion as opposed to a net buyer of RM3.0 billion in the preceding year. As a result, the FBM KLCI index fell by 5.7% as at end December last year, to close at 1,761.25. Similarly, foreign funds were offloading ringgit denominated debts holdings. The share of foreign ownership in Malaysian Government Securities (“MGS”) slid to 44.1% at the end of 2014 from a high of 48.4% in July. Consequently, bond yields were higher with the 3- and 10-year MGS yield rising by 31 and 2 basis points at the end of last year to reach 3.64% and 4.15% respectively.

Amidst such volatility, the Islamic finance industry demonstrated a high degree of resilience. Total Islamic banking assets maintained double digit growth of 12.4% to register RM487.1 billion in 2014. The share to total banking system asset also rose to 22.2%, suggesting the increased standing of Islamic banks as financial intermediaries in the Malaysian economy. This was reflected in financing assets growth of 18.4% to RM336.1 billion, which surpassed the 9.3% growth for the whole banking industry. There appears to be more placements for Islamic deposits with growth registering 14.8% or RM401.0 billion as at end 2014; largely supported by current and savings account (“CASA”) which posted 10.1% growth during the year. The Islamic capital market also flourished during 2014 with new issuance of Sukuk rising to RM8.8 billion – an increase of 11.3% from the previous year. Issuances were mainly dominated by financial institutions as they commenced fulfilling Basel III requirement. Against such a backdrop, the operating environment should be earnings-accretive for Bank Islam as the stable employment market bodes well with our financing portfolio composition. Additionally, the anticipation of sustained increase in private investment activities would mean there are pockets of opportunities for the Bank to widen its presence in the commercial and corporate space.

Going forward, the economic landscape is expected to remain challenging as prospects for global demand is mixed. On one hand, the US economic recovery has been ongoing with unemployment rate steadily scaling down while the number of jobs created is soaring. Combined with lower oil prices, household spending in the largest economy is anticipated to be supportive to global growth. However the situations in other developed economies are less positive as they grapple to fend off deflationary pressures. The European region has been plagued by falling prices with the Harmonise Index of Consumer Prices (“HICP”) declining for three consecutive months between December 2014 and February 2015. In addition, the fall in property prices in China amidst rising non-performing loans is likely to temper growth in the immediate terms as policy makers seek to rebalance the Mainland’s engine of growth. As a result, a slew of monetary easing measures were introduced by major central banks across the globe; most notably in Europe, where negative interest rate and quantitative easing (“QE”) measures were announced in late 2014 in a bid to resuscitate demand while avoiding the threat of a deflationary spiral. In the meantime, China, India, Indonesia and Singapore have now switched to a more accommodative monetary stance as lower oil prices have allowed them to reduce policy rates to support the economy.

Back home, on 20 January 2015, the Malaysian government has revised its Budget 2015 allocation since fiscal deficits as percentage of GDP in 2015 is projected to reach 3.2% from the previous estimate of 3.0%. The revision came as oil prices are likely to remain low. Such an announcement is deemed to be timely and realistic since the government is committed to reduce the budget gap, albeit more gradually, while sustaining economic growth. Therefore, the economy is poised to grow between 4.5% and 5.5% in 2015 underpinned by continued resilience in domestic activities and the external sector.


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