Central Bank of Malaysia: Economic and Financial Developments in the Malaysian Economy - 4Q 2017

Transcription

1. The BNM Quarterly Bulletin presents a quarterly review of Malaysia ’s economic, monetary and financial developments. It includes the Bank’s latest assessments on the direction of the economy going forward. The Bulletin also provides insights on current economic and financial issues, including highlights of policy initiatives undertaken by Bank Negara Malaysia in pursuit of its mandates.
3. Contents P4 Key Highlights P7International Economic Environment P9 Developments in the Malaysian Economy P19 Box Article 1 : Affordable Housing: Challenges and the Way Forward P27 Monetary and Financial Developments P31 Box Article 2: Unorthodox Measures for Unconventional Times Managing Risks to Financial Stability P37 P45 The Bank’s Policy Considerations P47 Macroeconomic Outlook Feature Article P51 Feature Article 1: Open Application Programming Interface (API): A Financial Revolution P59 Annex
4. BNM QUARTERLY BULLETIN Key Highlights on Economic and Financial Developments in 4Q 2017 Strong GDP growth of 5 .9% Continued expansion in domestic demand and across most economic sectors Real GDP Growth yoy, % 8 7 6 5 4 3 2 qoq sa, % 4 6.2 5.9 Private sector demand continued to be the primary driver of growth 3 2 1.8 0.9 3Q 2017 External demand provided further support to growth 1 0 4Q 2017 On the supply side, the manufacturing and services sectors remained the key drivers of growth Annual Growth Quarter-on-Quarter Growth, seasonally-adjusted Both headline and core inflation moderated in 4Q 2017 Core inflation moderated to 2.3% in 4Q 2017 (3Q 2017: 2.4%) Lower percentage of items that registered above 2% inflation Headline and Core Inflation Inflation Pervasiveness Percentage of items, % yoy, % 40 20 0 20 40 60 80 4.5 4.0 3.5 3.0 3.6 3.5 2.4 2.5 2.0 1.5 1Q 2017 2Q 2017 2.3 3Q 2017 Headline inflation 34 Inflation above 2% 32 Inflation at 2% and below 3Q 2017 4Q 2017 4Q 2017 Above 2% Core inflation Between 0 to 1% Between 1 to 2% Below 0% Financial system soundness preserved Healthy asset quality observed in the banking system Businesses and households continued to have access to financing Banking System Asset Quality Banking System Loan Disbursement to Businesses and Households % % 90 1.3 85 1.2 80 1.1 75 1.0 1Q 2Q 3Q 2016 4Q 1Q Loan loss coverage ratio Net impaired loans ratio (RHS) 2Q 3Q 2017 4Q yoy, % 10 5 0 -5 -10 1Q 2Q Businesses Source: Department of Statistics, Malaysia and Bank Negara Malaysia unless stated otherwise For more information, visit www.bnm.gov.my 4 FOURTH QUARTER 2017 3Q 2016 4Q 1Q Households 2Q 3Q 2017 4Q
5. Key Highlights on BNM QUARTERLY BULLETIN Box and Feature Articles Affordable Housing : Challenges and the Way Forward Challenges in Affordable Housing Five Policy Solutions as Ways Forward Affordable housing provision is fragmented and uncoordinated Centralisation of Affordable Housing Initiatives Lack of an integrated housing database and registry ! High construction costs as one of the barriers to supply ! !! 1 Strengthening the Rental Market 4 High household indebtedness coupled with house price growth exceeding household income growth Rental market is currently still underdeveloped given the insufficient legal safeguards 2 5 Rehabilitating the Balance Sheet of Households 3 Establishing an Integrated Housing Database and an Efficient Applicant Registry Reducing Construction Costs Open Application Programming Interface (API): A Financial Revolution An Open API strategy is viewed as a key lever to increase efficiency, broaden access, promote greater innovation, and encourage competition in the financial sector Market competition Fintech & financial institution collaboration Financial and payments-related Open APIs poised to grow exponentially Security & privacy Third party credibility Reservations on Open API Regulatory mandates Threat of disintermediation Tech readiness/Prohibitive cost Moving Forward with Open APIs for 2018 PRIORITY Identify & consult on priority use cases Roadmap for publication of priority Open APIs Establish Open API Implementation Group Develop Open API standards Review regulations/controls over confidential customer data Source: Department of Statistics, Malaysia and Bank Negara Malaysia unless stated otherwise For more information, visit www.bnm.gov.my Mechanism to secure consent and safeguard customer’s data FOURTH QUARTER 2017 5
6. 6 FOURTH QUARTER 2017
7. International Economic Environment HIGHLIGHTS • The global economy continued to expand at a strong pace. • Robust export growth due to broad-based improvements in global demand. • High financial market volatility. Global growth expanded further Faster global economic expansion in 4Q 2017 Eko pad In the fourth quarter of 2017, the global economy continued to expand at a strong pace. Most major and emerging market economies registered growth rates which are close to the performance seen in the third quarter of 2017. Chart 1: GDP Growth Raj Annual change (%) 8 Peru 8 6.6 6 5.9 7 6 5.2 5 4 3 5 2.7 3.6 2.5 3.3 4 3.0 3 1.5 2 2 3Q 17 Korea C. Taipei Singapore Indonesia Malaysia Philippines PR China UK 1 0 US 1 0 Euro area In the advanced economies, growth was mainly driven by continued expansion in private consumption and improvements in investment activity. Household spending was supported by modest improvements in wage growth as labour markets continued to tighten. Of significance, unemployment rates in the US and euro area reached post-crisis lows in the fourth quarter. Resilient demand, coupled with firms’ desire to expand production capacities amid a more positive business outlook, underpinned the strength in investment. In particular, capital spending on machinery and equipment remained on an upward trajectory. These developments contributed to improvements in global demand and trade activity. 6.8 7 4Q 17 Source: National authorities Sumb Growth in Asia continued to benefit from the expansion in global economic activity. PR China recorded sustained growth as the improvements in exports complemented the expansion in domestic demand, offsetting some of the impact from ongoing economic reforms. In other Asian economies, robust exports coincided with continued growth in domestic economic activity. Policy support and higher infrastructure spending accompanied resilient expansions in domestic demand. FOURTH QUARTER 2017 7
8. BNM QUARTERLY BULLETIN Robust export performance in 4Q 2017 eksport teguh pada S4 2017 ExportSektor growth remained robust Chart 2 : Export Growth of Selected Economies (in USD terms) Rajah 2: Pertumbuhan Negara Terpilih Global trade continued to grow Export at a robust pace, USD) improvements in global driven by(dalam broad-based demand. This translated into higher shipments of Perubahan tahunan (%) manufactured, resource-based and commodity products30 from the region. Annual change (%) 30 25 25 Source: National authorities and Bloomberg High volatility in the financial markets Turun naik pasaran kewangan bertambah High volatility in the financial markets Rajah 3: Indeks Ketidaktentuan (VIX) Chart 3: Chicago Board Options Exchange (CBOE) Volatility (VIX) Chicago Board Options Exchange (CBOE) 18 13 Dec-17 Sep-17 Jun-17 Mar-17 8 However, this trend reversed in early February 2018 as volatility increased reflecting sharp corrections in the equity markets. Investor sentiments were affected 8 by the expectation that the Federal Reserve could potentially hike interest rates by more than projected given rising wages in the US. Source: Bloomberg Sumber: Bloomberg In the commodities market, Brent crude oil prices rose steadily throughout the quarter, crossing the USD601 per barrel mark in November 2017 and ending the quarter at USD67 per barrel. The upward trend reflected mainly investors’ response to developments that highlighted a narrowing oversupply gap in the global crude oil market. In particular, declining crude oil inventories, pipeline shutdowns and the announcement of OPEC’s output cut extension drove expectations for lower crude oil supply in the future and led to the increase in prices. 1 8 FOURTH QUARTER 2017 Based on global Brent crude oil 1-month futures price Dis-17 In the fourth quarter, global financial market volatility Indeks remained low. Still, there were brief spikes in volatility 18 recorded during the second half of the quarter. These short episodes of increase in volatility were triggered mainly by concerns surrounding the resolution and safe passage of the Tax Cuts and Jobs Act by the US Congress. Volatility in the financial markets 13 subsided following the signing of the act into law. Index Dec-16 As a result, many Asian economies recorded S3 17 in their exports S4 17 during a double-digit growth the quarter. These economies benefitted from Sumber: Pihak berkuasa negara dan Bloomberg both demand for technological products and commodities. Nonetheless, export growth moderated in some economies due to lower shipments of motor vehicles and automotive parts. 6.1 Hong Kong Hong Kong Korea PR China C. Taipei Thailand 4Q 17 Sep-17 3Q 17 Indonesia Malaysia 0 Singapore 5 8.6 Korea 6.1 RR China 8.6 C. Taipei 9.7 Jun-17 10.5 Thailand 10 Indonesia 11.7 Mac-17 13.2 Singapura 16.6 Dis-16 16.9 15 Malaysia 20 Shipments of technology-related products was 20 by the demand for consumer electronic supported 16.9 16.6 products15 such as flagship smartphone models 13.2 11.7 10.5 released in the second half of 2017. Sales of 9.7 10electronics and appliances also increased consumer in the US 5and some European countries leading up to the festive season. The uptrend in commodity 0 prices provided further support to commodity exporters.
9. Developments in the Malaysian Economy HIGHLIGHTS • The Malaysian economy expanded by 5.9% in the fourth quarter. • Headline and core inflation moderated slightly to 3.5% and 2.3%, respectively. • Current account surplus widened slightly to RM12.9 billion in the fourth quarter of 2017, accounting for 3.7% of GNI (3Q 2017: RM12.5 billion or 3.7% of GNI). Growth of the Malaysian economy remained strong at 5.9% in the fourth quarter of 2017 For the fourth quarter of 2017, the Malaysian economy registered a growth of 5.9% (3Q 2017: 6.2%) as private sector spending continued to be the primary driver of growth (7.4%; 3Q 2017: 7.3%). The external sector performance improved further (5.4%; 3Q 2017: 1.7%), as real import growth moderated faster than real export growth. On a quarter-on-quarter seasonally-adjusted basis, the economy grew by 0.9% (3Q 2017: 1.8%). For the year as a whole, the economy registered a robust growth of 5.9%. Sustained growth in 4Q 2017 Chart 4: GDP Growth % 7 % 6.2 6 5 2 1.8 4 3 0.9 2 3 5.9 1 1 0 4Q 16 1Q 17 2Q 17 3Q 17 4Q 17 0 Quarterly change (%), seasonally-adjusted (RHS) Annual change (%) Source: Department of Statistics, Malaysia FOURTH QUARTER 2017 9
10. BNM QUARTERLY BULLETIN Permintaan sektor swasta terus menjadi pemacu Private sector demand remained the key driver of growth utama pertumbuhan Domestic demand driven by the private sector Chart 5 : Contribution of Expenditure Components to GDP Growth Domestic demandPertumbuhan expanded byKDNK 6.2% (3Q 2017: Perubahan tahunan (%), Sumbangan kepada pertumbuhan (mata peratusa 6.6%) supported by continued strength in private sector expenditure (7.4%; 3Q 2017: 7.3%), amid 8 5.6 sector spending (3.4%; waning support from public 6.2 7 5.9 5.8 3Q 2017: 4.0%). 6 5 4 expanded by 7.0% Private consumption 3 (3Q 2017: 7.2%), 2supported by continued wage and employment growth. 1 Rajah 5: Sumbangan Komponen Perbelanjaan kepada Annual change (%), Contribution to growth (percentage points) 8 7 6 5 4 3 2 1 0 -1 -2 5.6 6.2 5.8 5.9 0 1Q 2017 2Q 2017 3Q 2017 -1 registered a higher growth of Private investment -2 9.2% (3Q 2017: 7.9%), driven mainlyS2 by2017 the services S1 2017 S3 2017 and manufacturing sectors. Capital spending was Penggunaan awam Penggunaan swasta supported by continued business optimism and Eksport bersih stok favourable demand, which was evidentPerubahan across both export- and domestic-oriented industries. Sumber: Jabatan Perangkaan Malaysia 4Q 2017 Private consumption Public consumption GFCF Net exports Change in stocks Real GDP Source: Department of Statistics, Malaysia Gross fixed capital formation expanded further Chart 6: GFCF Growth by Type of Assets Annual change (%) Annual change (%) 30 6.7 20 4.3 10.0 0.0 10 -10.0 0 -10 4Q 16 1Q 17 2Q 17 3Q 17 4Q 17 Structures Machinery and equipment Other assets* Gross fixed capital formation (RHS) *Other assets include mineral exploration, research & development and capitalised planting Source: Department of Statistics, Malaysia 10 FOURTH QUARTER 2017 -20.0 S4 2017 PMTK KDNK benar Public consumption expanded by 6.9% (3Q 2017: 3.9%) mainly driven by higher spending on supplies and services by the Federal Government. Pembentukan Modal Tetap Kasar terus berkembang Public investment during PMTK the quarter Rajahcontracted 6: Pertumbuhan Mengikut Jenis Aset (-1.4%; 3Q 2017: 4.1%), due to lower capital Perubahan tahunan (%) Perubahan tahunan (%) spending by both the General Government and 30 10.0 6.7 public corporations. 20 4.3 0.0 Gross fixed capital formation (GFCF) growth moderated to104.3% (3Q 2017: 6.7%) mainly due to a -10.0 contraction in 0public investment. By type of assets, capital spending on machinery and equipment -20.0 continued to-10 register a strong growth of 8.3% S4 16 S1 17 S2 17 S3 17 S4 17 (3Q 2017: 11.5%). Investment in structures was broadly sustained atStruktur 3.3% (3Q 2017: 3.6%) while dan kelengkapan investment in other Jentera types of assets contracted by Aset-aset lain* 6.7% (3Q 2017: 7.2%). Pembentukan modal tetap kasar (skala kanan) *Aset-aset lain termasuk penerokaan mineral, penyelidikan & pembangunan dan penanaman modal Sumber: Jabatan Perangkaan Malaysia
11. BNM Annual change (%) 12 10.7 10 8 6.2 6 5.8 5.4 4 2 0 3Q 17 Mining 4Q 17 Growth in the manufacturing sector eased during the quarter, reflecting a broad-based moderation in both export- and domestic-oriented industries. Production in the export-oriented industries including electrical and electronics (E&E) and petroleum refinery activity continued to expand, albeit at a more moderate pace. Lower growth in the domesticoriented industries was due mainly to a slower production of transport equipment and food-related products, as well as construction-related materials. Source: Department of Statistics, Malaysia In the mining sector, growth declined as natural gas output was affected by pre-scheduled facilities’ shutdown in Sarawak. However, the agriculture sector’s growth performance improved, reflecting mainly higher CPO output as yields recovered from adverse weather conditions in the previous quarter. 5 Growth in the construction sector was sustained by civil engineering activity for rail, highway, petrochemical and power plant projects. Construction -0.5 -2 Agriculture The services sector registered slightly lower growth in the fourth quarter. This mainly reflected lower growth in the wholesale and retail trade sub-sector, in tandem with the moderation in private consumption. However, growth in the finance and insurance sub-sector improved, supported by lower insurance claims and sustained banking activity. Growth in the information and communication sub-sector continued to be underpinned by high demand for data communication and computer services. Chart 7: Growth by Sector Manufacturing On the supply side, most economic sectors recorded a moderate expansion, except for the agriculture sector, while growth in the mining sector declined. Moderate growth across most economic sectors Services Moderate expansion across most economic sectors QUARTERLY BULLETIN Services and manufacturing sectors remained the key drivers of growth Chart 8: Real GDP by Economic Sector Annual change (%), Contribution to growth (percentage points) 7 6.2 5.9 3Q 17 4Q 17 6 4 3 2 1 0 Mining Agriculture Services Construction Manufacturing Real GDP Source: Department of Statistics, Malaysia FOURTH QUARTER 2017 11
12. BNM QUARTERLY BULLETIN In flasi keseluruhan lebih sederhana mencerminkan The more moderate headline inflation reflected lower inflation in the housing and transport categories perumahan dan pengangkutan yang Both headlineinflasi andkategori core inflation lebih rendah moderated in 4Q 2017 Chart 9: Headline Inflation Headline inflation2 Rajah moderated slightly to 3.5% in 4Q 9: Inflasi Keseluruhan 2017 (3Q 2017: 3.6%) due mainly to lower inflation %, mata peratusan in the housing, water, electricity, gas and other fuels 5.0 and transport categories. %, percentage points 5.0 4.0 4.0 Inflation for the housing, water, electricity, gas and 3.0 other fuels category averaged at 2.2% (3Q 2017: 2.0 2.3%). Rental inflation declined slightly to 2.8% 1.0 during the quarter (3Q 2017: 2.9%), due mainly 0.0 to the smaller increase in rental for terrace and bungalow houses.-1.0 3.0 2.0 1.0 0.0 -1.0 -2.0 1Q 2Q 3Q 4Q 1Q 2015 2Q 3Q 4Q 1Q 2Q 2016 3Q -2.0 S1 S2 category S3 S4 was S1 slightly S2 S3 S4 S1 While inflation in the transport 2015 lower during the quarter, it remained elevated 2016 at 11.4% (3Q 2017: 11.7%) due to high domestic Makanan & minuman bukanfuel alkohol (30.2%) prices. Pengangkutan (13.7%) 4Q 2017 Food & non-alcoholic beverages (30.2%) Transport (13.7%) Housing, water, electricity, gas & other fuels (23.8%) Alcoholic beverages & tobacco (2.9%) Others (29.4%) Headline inflation Core inflation Rebakan inflasi lebih kecil pada S4 2017 Chart 10: Inflation Pervasiveness Rajah 10: Rebakan Inflasi Percentage of items (%) Peratusan daripada jumlah barangan (%) 100 100 Inflation above 2% Inflasi lebih daripada 80 60 60 40 40 20 20 0 0 20 20 40 40 60 60 Inflation at 2% and below 80 1Q 2Q 3Q 4Q 2015 1Q 2Q 3Q 2016 4Q 1Q 2Q 3Q 4Q 2017 S1 S2 S3 S4 S1 S2 2015 S3 2016 S4 S1 S2 S3 2017 Sumber: Jabatan Perangkaan Malaysia dan anggaran Bank Negara Malaysia 2 FOURTH QUARTER 2017 Inflasi pada 2 % atau ku 80 100 Source: Department of Statistics, Malaysia and Bank Negara Malaysia estimates 12 S4 Perumahan, air, elektrik, gas & bahan api lain (23.8%) Inflation pervasiveness was slightly lower in 4Q 2017 100 S3 2017 & tembakau (2.9%) Core inflation also declinedMinuman during alkohol the quarter to Lain-lain (29.4%) 2.3% (3Q 2017: 2.4%). Inflation pervasiveness was Inflasi keseluruhan lower, as the percentage ofInflasi items in the CPI basket teras that registered inflation of more than 2%anggaran declined Nota: Inflasi teras tidak termasuk kesanto langsung GST Sumber: Jabatan Perangkaan Malaysia dan anggaran Bank Negara Malaysia 32% (3Q 2017: 34%). Note: Core inflation excludes the estimated direct impact of GST Source: Department of Statistics, Malaysia and Bank Negara Malaysia estimates 80 S2 As measured by the annual change in the Consumer Price Index (CPI).
13. BNM Stable labour market conditions Labour market conditions remained stable in the fourth quarter of 2017 . Private sector wage and employment growth moderated to 6.3% (3Q 2017: 7.5%) and 2.2% (3Q 2017: 2.3%) respectively. During the quarter, labour force expansion was relatively matched by net employment gains resulting in a stable unemployment rate of 3.4% (3Q 2017: 3.4%). The number of vacancies posted on a major job search website also moderated to 61,061 positions in the 4Q (3Q 2017: 68,794 positions). The moderation in private sector wages was due to slower wage growth in the services and manufacturing sectors. Services sector wage growth moderated to 5.0% (3Q 2017: 6.1%), amidst slowdown in the information and communication and professional services subsectors. Manufacturing wage growth moderated to 9.4% (3Q 2017: 10.6%) due to the slowdown in the electrical and electronics and chemicals subsectors. Strong external sector performance In 4Q 2017, gross export growth was comparatively lower than the previous quarter but continued to register double-digit performance of 12.4% (3Q 2017: 22.1%), driven mainly by manufactured exports (14.2%; 3Q 2017: 23.7%). The trade surplus widened to RM27.7 billion (3Q 2017: RM26.7 billion). QUARTERLY BULLETIN Stable unemployment rate and moderation in wage growth Chart 11: Labour Market Indicators Unemployment Rate Private Sector Wages* Annual change (%) Annual change (%) 4.0 7.5 8 7 6.3 6 3.4 3.4 3.5 5 4 3 3.0 2 1 2.5 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2016 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2016 2017 2017 *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 (DOSM). It covers 62% of total employment.   Source: Department of Statistics, Malaysia Export growth supported mainly by manufactured exports Chart 12: Gross Exports by Products Annual change (%), contribution to growth (percentage points) 25 21.4 20 20.5 22.1 15 12.4 10 2.3 5 1.6 3.1 0 -5 -2.1 1Q 2Q 2016 3Q 4Q 1Q 2Q 2017 3Q 4Q E&E Resource-based Non-resource based Commodities Others Gross exports (% yoy) Source: Department of Statistics, Malaysia FOURTH QUARTER 2017 13
14. BNM QUARTERLY BULLETIN Export growth was also broad-based across markets Chart 13 : Gross Exports by Markets Annual change (%), contribution to growth (percentage points) 25 20 22.1 20.5 21.4 15 12.4 10 5 2.3 -5 3.1 1.6 0 -2.1 1Q 2Q 2016 3Q 4Q ASEAN Rest of Asia EU Japan 1Q 2Q 2017 PR China Gross exports ( annual change, %) 3Q 4Q US Rest of World Source: Department of Statistics, Malaysia Strong imports, supported mainly by intermediate and capital goods 2016 2017 Perubahan tahunan (%), sumbangan kepada pertumbuhan (mata peratusan) 30 30 27.7 10 14. 15 10 5 5.1 2.8 0 1Q 5 3Q 4Q 1Q 2016 Intermediate goods Others 2Q 3Q -10 S1 S2 2017 Capital goods Consumption goods Gross imports (annual change, %) Source: Department of Statistics, Malaysia FOURTH QUARTER 2017 4Q -0.1 -0.4 -5 2Q 5.1 2.8 0 -0.1 -0.4 -5 -10 19.8 19.0 20 14.4 15 27.7 25 19.8 19.0 20 S3 Gross import growth remained strong in 4Q 2017 RR China Negara-negara Asia lain (14.4%; 3Q 2017: 19.8%),ASEAN on account of continued Jepun Negara-nega EU strength in intermediate imports and higher capital Eksport kasar (perubahan tahunan, %) imports. This was in line with strong manufacturing Sumber: Jabatan Perangkaan export performance and continued strengthMalaysia in domestic demand. Higher capital imports was in tandem with the strength in investment activity in the Import kasar kukuh, terutamanya oleh manufacturing and services sectors. Thisdisokong was further barangan dan modal supported by a surge in aircraftpengantara deliveries during the quarter. Annual change (%), contribution to growth (percentage points) 25 22.1 Rajah 14: Import Kasar Mengikut Produk Chart 14: Gross Imports by Products 14 Pertumbuhan eksport juga menyeluruh merentas pa The strong manufactured export performance was supported by continued demand from Malaysia’s Rajah 13: Eksport Kasar Mengikut Pasaran major trading partners, particularly regional Perubahan (%), economies, the EU and US. Of tahunan significance, kepada pertumbuhan (mata peratusan) semiconductor exportssumbangan accelerated to 24.4% (3Q 2017: 22.3%), benefitting from the upswing 25 20.5 21.4 in the global technology cycle. Resource-based 20 manufactured exports remained resilient, supported mainly by chemicals &15 chemical products, petroleum and rubber 10 products. Commodity exports moderated due mainly to contractions in palm oil 5 and natural rubber products and 2.3 slower growth in 3.1 1.6 offset by LNG exports. This was0however, partially stronger crude petroleum exports, reflecting-2.1 mainly -5 higher crude oil prices. S1 S2 S3 S4 S1 S2 S3 S4 S1 S2 2016 Barangan pengantara Lain-lain S3 Barangan modal Barangan pen Gross imports (annual change, %) Sumber: Jabatan Perangkaan Malaysia S4 2017
15. BNM QUARTERLY BULLETIN Higher current account surplus Continued current account surplus The current account surplus widened slightly to RM12 .9 billion in the fourth quarter of 2017 (3Q 2017: RM12.5 billion), accounting for 3.7% of GNI (3Q 2017: 3.7% of GNI). This was due to a larger goods surplus and lower deficit in the secondary income account which offset the higher deficits in the services and primary income accounts. For the full year, the current account surplus widened to RM40.3 billion or 3.1% of GNI (2016: 2.4% of GNI), the highest since 2015. Chart 15: Current account balance Reflecting the sustained strong export performance during the quarter, the goods surplus increased to RM34.1 billion3 (3Q 2017: RM31.7 billion). The services account, however, registered a larger deficit of RM6.9 billion (3Q 2017: -RM4.9 billion). This was attributable mainly to the lower surplus in the travel account (RM7.9 billion; 3Q 2017: RM9.2 billion) as travel receipts declined due to lower tourist per capita expenditure. The construction services deficit was also higher (-RM4.3 billion; 3Q 2017: -RM3.3 billion), driven by higher construction services imports mainly in projects related to the oil & gas, utilities and transportation sectors. RM billion % of GNI 40 3.7 3.9 3.0 30 2.0 1.7 1.1 10 4.0 3.0 2.4 2.2 20 3.7 1.0 0.0 0 -10 -1.0 -20 -2.0 -30 1Q 2Q 3Q 4Q 1Q 2016 Goods Secondary income 2Q 3Q 4Q -3.0 2017 Services Primary income Current account balance (RHS) Source: Department of Statistics, Malaysia The higher deficit in the primary income account (-RM9.5 billion; 3Q 2017: -RM8.6 billion) was largely attributable to higher profits accrued to foreign investors in Malaysia, particularly in the mining and wholesale & retail trade services sub-sectors. This was partially offset by higher profits earned by Malaysian firms investing abroad, particularly in the real estate services sub-sector. The secondary income account registered a sizeable, albeit smaller deficit of RM4.8 billion (3Q 2017: -RM5.7 billion). Outward remittances amounted to RM8.6 billion (3Q 2017: -RM9.5 billion) driven by foreign worker remittances while inward remittances were sustained at RM3.8 billion (3Q 2017: RM3.8 billion). 3 The difference between the goods surplus and trade surplus may arise from the exclusion of goods for processing, storage and distribution in the goods accounts as per the 6th Edition of the Balance of Payments and International Investment Position Manual (BPM6) by the IMF FOURTH QUARTER 2017 15
16. BNM QUARTERLY BULLETIN Aliran masuk bersih dalam akaun pelaburan Net inflows in portfolio investment account contributed by both residents and non-residents portfoliorecorded disumbangkan pelabur pemastautin Financial account netoleh inflows dan pelabur bukan pemastautin In the fourth quarter of 2017 , the financial account Rajahof16: Pelaburan registered a net inflow RM5.0 billion portfolio (3Q 2017: net outflow of RM1.2 billion). This was supported by RM bilion portfolio investment inflows by both residents and non30 residents, foreign direct investments (FDI) and some liquidation of direct20investments abroad (DIA) assets by Malaysian companies. These inflows were partially 10 offset by outflows arising from banks’ liquidity and 0 treasury management operations. Chart 16: Portfolio Investments RM billion 30 20 10 0 -10 -10 -20 -30 -40 1Q 2Q 3Q 4Q 2016 Resident 1Q 2Q 3Q 4Q 2017 Non-Resident Net Portfolio Investment Source: Department of Statistics, Malaysia Net inflows in the direct investment account Chart 17: Net Direct Investment Flows by Sector RM billion 6 4 2 0 -2 -4 -6 RM2.8 bn -RM2.3 bn 3.2 1.8 0.9 0.6 0.8 -2.8 -1.7 -0.3 -2.6 DIA FDI Agriculture Manufacturing Financial Services Mining Construction Non-financial Services Note: For DIA, positive values refer to net outflows while negative values refer to net inflows Source: Department of Statistics, Malaysia The portfolio investment account registered a net inflow of RM11.7 -20 billion (3Q 2017: net outflow of RM5.1 billion), attributed mainly to non-resident -30 portfolio investments, which recorded a higher net inflow of RM7.7 billion -40 (3Q 2017: net inflow of RM3.7 S1 S2 S3 performance, S4 S1 S2 S3 S4 billion). Better-than-expected economic 2016 2017 higher corporate earnings and improvement in global oil prices provided support to investor sentiments in Pemastautin Bukan pemastautin Pelaburan portfolio bersi the domestic financial markets. Resident portfolio Sumber: Jabatan Perangkaan Malaysia investments also registered a net inflow of RM4.0 billion (3Q 2017: net outflow of RM8.8 billion), as domestic institutional investors liquidated some of their bond DIA mencatat aliran masuk terutamanya ke dalam holdings abroad. perlonbongan manakala FDI tertumpu dalam sub perkhidmatan bukan kewangan The direct investment account registered a net inflow of RM5.1 billion (3Q 2017: net inflow of RM6.2 billion), Rajah Aliran Pelaburan on account of continued FDI 17: inflows and a reversalLangsung Bersih Sektor of DIA flows during theMengikut quarter. FDI amounted to a smaller net inflow of RM2.8 billion (3Q 2017: net inflow RM bilion of RM11.2 billion), due mainly to lower equity capital 6 RM2.8 bn injections from parent companies and a moderation in 4 retained earnings. FDI inflows were channeled -RM2.3 bn mainly 3.2 into the services sector,2particularly the1.8 real estate and 0.6 wholesale and retail trade sub-sectors,0.9 followed by 0.8 0 the mining and construction sectors. DIA by Malaysian -1.7 -2.8 companies also recorded -0.3 -2 a net inflow of RM2.3 billion (3Q 2017: net outflow of RM5.0 billion), due to a net -4 and a net repayment -2.6 liquidation of equity capital of intercompany loans from subsidiaries and affiliates -6 DIAwere the FDI abroad. Sectors which recorded inflows mining and services sectors, particularly the financial Agriculture Mining services sub-sector. Manufacturing Construction Financial Services Non-financial Services Nota: Bagi DIA, angka positif merujuk aliran keluar bersih manakala angka �n The other investment account recorded a larger merujuk aliran masuk bersih net outflow of RM10.9 billion (3Q 2017: net outflow Sumber: Jabatan Perangkaan Malaysia of RM3.3 billion), due mainly to the placements of currency and deposits abroad by domestic financial institutions. Following these developments, the overall balance of payments registered a deficit of RM13.1 billion in the fourth quarter (3Q 2017: a surplus of RM2.9 billion). Errors and omissions, which includes revaluation changes on BNM’s international reserves, amounted to -RM31.0 billion or -6.7% of total trade. 16 FOURTH QUARTER 2017
17. BNM QUARTERLY BULLETIN Manageable external debt Higher external debt in 4Q 2017 Malaysia ’s external debt amounted to RM883.4 billion, equivalent to USD215.5 billion or 65.3% of GDP as at end-December 2017 (end-September 2017: RM873.8 billion or USD204.7 billion or 64.6% of GDP). The higher external debt reflects the increase in loans, interbank borrowing and nonresident (NR) holdings of domestic debt securities. This was partially offset by valuation effects following the strengthening of the ringgit against selected major and regional currencies during the fourth quarter. Chart 18: Changes in External Debt Net Change1: +RM9.5 billion Malaysia’s external debt remains manageable given its currency and maturity profiles, as well as the availability of large external assets. More than one-third of total external debt is denominated in ringgit (34.3%), mainly in the form of NR holdings of domestic debt securities and in ringgit deposits in domestic banking institutions. As such, these liabilities are not subjected to valuation changes from the fluctuations in the ringgit exchange rate. The remaining external debt of RM580.7 billion (65.7%) is denominated in foreign currency (FC) and is subject to prudential liquidity management practices and hedging requirements on banking institutions and corporations. The bulk of these obligations are offshore borrowings, raised mainly to expand productive capacity and to better manage financial resources within corporate groups. As at end-December 2017, the offshore borrowing remained low at 37.5% of GDP compared to 60.0% of GDP during the Asian Financial Crisis. RM billion 20 positive indicates net borrowing or issuance of debt securities 10 0 -10 -20 -30 Exchange rate valuation effects Others2 Bonds and notes Intercompany loans NR deposits NR holdings of domestic debt securities Interbank borrowing Loans Changes in individual debt instruments exclude exchange rate valuation effects Comprises trade credits, IMF allocation of SDRs and other debt liabilities Note: NR refers to non-residents 1 2 Source: Ministry of Finance, Malaysia and Bank Negara Malaysia FC-denominated debt subjected to prudent liquidity management practices and hedging requirements Chart 19: Breakdown of Foreign Currency-Denominated External Debt (% of Share) Loans 8.9% Others* 10.9% Intercompany Loans 17.2% Bonds and Notes 26.6% NR deposits 7.1% Interbank borrowing 29.3% Offshore Borrowings *Includes trade credits and miscellaneous, such as insurance claims yet to be disbursed and interest payables on bonds and notes FOURTH QUARTER 2017 17
18. BNM QUARTERLY BULLETIN Of the total FC-denominated external debt (inclusive of valuation effects), more than one-third (or amounting to RM211.6 billion) is accounted by interbank borrowing and FC deposits in the domestic banking system. This largely reflects the banks’ intragroup liquidity management and placements of deposits from foreign parent entities, which are subjected to prudent liquidity management practices. Among these are internal limits on funding and maturity mismatches. This is then followed by long-term bonds and notes issued offshore which amounted to RM154.2 billion as at endDecember 2017, primarily to finance asset acquisitions abroad that will generate future income. The intercompany loans are typically on 18 FOURTH QUARTER 2017 flexible and concessionary terms, such as no fixed repayment schedule or low interest rate. From a maturity perspective, more than half of the total external debt is skewed towards medium- to long-term tenure (57.3% of total external debt), suggesting limited rollover risks. Given the export earnings of borrowers and external assets, it is important to note that international reserves is not the only means for banks and corporations to meet their short-term external obligations. International reserves account for about a quarter of total external assets, with the remaining external assets being held by banks and corporations. As at 30 January 2018, international reserves is 1.1 times the short-term external debt and is sufficient to finance 7.2 months of retained imports.
19. BNM Box Article 1 QUARTERLYBULLETIN QUARTERLY BULLETIN A ffordable Housing: Challenges and the Way Forward Authors: Cheah Su Ling, Stefanie Joan Almeida, Ho Su Wei HIGHLIGHTS • HousesinMalaysiaremainedunaffordabletomanyhouseholdsin2016due tothefailureinthemarkettoproduceasuffi cientquantityofaffordable housing for the masses. • Policy propositions include establishing a single entity to spearhead affordablehousinginitiatives,settingupanintegrateddatabasetoassist inmatchingdemandandsupply,andreducingcosts.Onthedemand side,strategiesincluderehabilitatingthebalancesheetofhouseholdsand improvingtherentalmarket. Introduction Housing affordability is a global concern plaguing key cities around the world in both developing and advanced economies. The key drivers include the rise in income growth and urbanisation, driven by better job opportunities in cities. Affordable housing is defined1 as housing which is sufficient in quality and location, and is not so costly that it prevents its occupants from satisfying other basic living needs. In other words, the location, quality and build-up of a house is equally as important as the financial affordability of a house. In 2014, the McKinsey Global Institute estimated that 330 million urban households globally live in substandard housing or are financially stretched by housing costs. Malaysia faces a similar issue in this regard. A number of reasons encompassing structural, cyclical, institutional and cultural factors, culminating in a mismatch between supply and demand, has contributed towards houses becoming seriously unaffordable in Malaysia in 2016. Consequently, Malaysia faces a shortage of affordable homes for the masses. This box article focuses on drawing out for public discussion, several policy propositions as a way forward in addressing this challenge. A. The state of housing affordability in Malaysia In 2016, houses in Malaysia remain seriously unaffordable by international standards with a median multiple2 of 5.0. The maximum affordable house price in Malaysia is estimated to be RM282,0003. However, actual median house price was RM313,000, beyond the means of many households, where the median national household income is only RM5,228. The housing affordability issue in Malaysia is largely due to the supply-demand mismatch and slower income growth. Financing continued to be available for purchases of houses for eligible borrowers, with more than 70% of housing loans accorded to first-time buyers and close to two-thirds of new housing loans channelled to the purchase of houses below RM500,0004. On the supply side, structural and cyclical factors in the housing market in Malaysia have resulted in a failure of the market to provide an adequate supply of affordable housing for the masses (Figure 1). On the demand side, growth in household income has not kept up with the rise in house prices. Together with a low state of financial literacy amongst a majority of Malaysian households, and a cultural preference towards home-ownership instead of renting, these have contributed to the high demand for house purchases. 1 2 3 4 According to the United Nations Human Settlement Programme (2011). Under the Median Multiple approach, housing is deemed affordable if median house prices are less than 3 times annual median household income. Based on the Housing Cost Burden (HCB) approach, in which a house is affordable if housing costs are less than 30% of monthly household income. Considers the role of credit in financing the purchase of a house. For further details, please refer to BNM’s 3Q 2017 Quarterly Bulletin Box Article “Imbalances in the Property Market” FOURTH QUARTER 2017 19 1
20. BNM QUARTERLYBULLETIN QUARTERLY BULLETIN Figure 1 : Factors Contributing Towards Housing Unaffordability in Malaysia5 New launches skewed towards unaffordable range Mismatch between supply and demand for housing • Since 2012, new housing supply has consistently fallen short of the increase in demand by households. • From 2016-Q12017, while 35% of Malaysian households can afford houses priced up to RM250k, only 24% of new launches were in that range, indicating an undersupply of . affordable homes • Over the period 2014-2016, there was an average supply of 114,000 new houses, sharply lower than 3 Key Factors the formation of 154,000 new Resulting in households. Housing Unaffordability • This also reflects the trend in new housing supply which has been skewed towards the higher-end property segment since 2012. Growth in house prices outpacing growth in household income • From 2007 to 2016, house prices grew by 9.8%, while household income only increased by 8.3%. • The issue was most acute in 2012 to 2014, when the growth in house prices (26.5%) more than doubled the growth in income levels (12.4%). • It is worth nothing that from 2014 to 2016, growth in house prices moderated to 5.7%, lower than the growth in income levels (6.8%) As a result of the acute supply-demand mismatch, the level of total unsold6 residential properties in Malaysia stands at a decade-high of 146,4977 units as at 2Q 2017, an increase from the 130,690 units as at 1Q 2017. During 2Q 2017, almost 82% of unsold units were priced above RM250,000. B. Policy propositions as the way forward Beyond measures to improve households’ income in the long run, a holistic approach is needed to effectively bridge the affordable housing gap in Malaysia (Figure 2). Figure 2: Five Key Policy Solutions to Reducing the Affordable Housing Gap in Malaysia Centralisation of Affordable Housing Initiatives Strengthening the Rental Market 5 4 Rehabilitating the Balance Sheet of Households 5 6 7 2 20 Establishing an Integrated Housing Database and an 2 Efficient Applicant Registry 1 3 Reducing Construction Costs For more details, please refer to BNM’s Annual Report 2016 Box Article “Demystifying the Affordable Housing Issue in Malaysia,” and BNM’s 3Q 2017 Quarterly Bulletin Box Article “Imbalances in the Property Market”. Includes both unsold properties that have been completed (overhang) and unsold properties currently under construction. These properties encompass all residential properties as well as serviced apartments and small office home offices (SOHO). (Source: National Property Information Centre). In comparison, the average total unsold residential properties between 2004 to 2016 was 72,239 units per year. FOURTH QUARTER 2017