Core Views
We believe that private consumption and investment growth will support domestic demand in Malaysia 2011. This should help cushion the negative impact of deteriorating net exports on economic growth over the coming quarters. Accordingly, we are maintaining our real GDP growth forecast of 4.9% and 4.2% for 2011 and 2012 respectively.
Growing support for the Bersih movement in Malaysia suggests that the Barisan Nasional’s popularity is declining. The government’s aggressive clampdown on the Bersih rally in Kuala Lumpur on July 9 may have swayed undecided voters towards the opposition camp. This is in line with our view that the ruling party will fail to secure a two-thirds majority in the upcoming general election.
Following a 25bps rate hike by Bank Negara Malaysia (BNM) to bring its overnight policy rate from 2.75% to 3.00% in May, we believe that the central bank’s monetary tightening cycle has come to an end. Instead, we expect the central bank to favour raising statutory reserve requirements as an alternative measure to rein in money supply growth. Robust current account dynamics should continue to provide support for the Malaysian ringgit. However, we warn that BNM may be compelled to cap further upside for the currency due to growing concerns that Malaysian exports are beginning to lose its competitiveness. Thus we expect a relatively mild appreciation in the ringgit towards MYR 2.9000/US $ by end-2011.
Major Forecast Changes
We upgraded our 2011 economic growth forecast to 4.9% (from 3.4%) in February on the back of stronger-than-expected growth outturn in recent quarters.
Key Risks To Outlook
Malaysia’s economic outlook is vulnerable to external shocks. Weaker-than-expected expansion in major economies such as China may have a negative impact on Malaysia’s near-term growth prospects. Over the next few years, the success of government initiatives such as the Economic Transformation Programme will be crucial in sustaining the country’s growth trajectory.
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Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks To Outlook5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Ratings 7
Domestic Politics l 8
Maintaining 2012 Election View
We maintain our view that the next general election will be held in 2012 (rather than 2011), even as the ruling United Malays National Organisation (UMNO ) begins early preparation for internal party polls Indeed, political support for the incumbent remains weak, as seen in the further loss of state seats in the recent Sarawak polls
Domestic Politics ll 9
Bersih Movement Set To Undermine Barisan Nasional’s Position At The Polls
Mounting tensions in the lead up to the Bersih rally on July 9 have led to the intervention of Malaysian King Tuanku Mizan Zainal Abidin to broker a compromise between the government and the leaders of the pro-democracy group
TABLE: POLITICAL OVERVIEW 9
Foreign Policy 11
Formalised Land Swap Deal Signifies Breakthrough In Bilateral Ties
Singapore and Malaysia formalised a land swap agreement on June 27, officially putting an end to a 20-year tussle
over railway land that Malaysia controls in Singapore
Long-Term Political Outlook 12
Race Relations Still Cloud The Horizon
Malaysia’s ethnic diversity will continue to influence domestic politics, while the rise of a stronger opposition since
the March 2008 elections opens up myriad possibilities in the political arena over the longer term
Chapter 2: Economic Outlook 15
SWOT Analysis 15
BMI Economic Risk Ratings 15
Economic Activity 16
Domestic Demand To Stay Resilient As Economic Growth Moderates
Malaysia’s real GDP growth came in at a weaker-than-expected 46% year-on-year in Q111, suggesting that there
could be downside risks to our full year economic growth forecast of 49%
Table: ECONOMIC ACTIVITY 16
Monetary Policy 18
Inflationary Pressures Set To Moderate; No More Rate Hikes in 2011
Malaysia’s headline consumer price inflation should average a comfortable 24% year-on-year in 2011 as inflationary
pressures moderate in H211
Table: MONETARY POLICY 18
Exchange Rate Policy 20
Table: EXCHANGE RATE 20
Trade Outlook 21
Table: CURRENT ACCOUNT 22
Chapter 3: 10-Year Forecast 25
The Malaysian Economy To 2020 25
Investment-Driven Growth In The 2010s
We expect Malaysia to register a long-term average growth rate of 40% between 2011 and 2020, driven by
stronger private consumption due to rising wealth levels, boosted by higher investment growth in the earlier years
Table: Long-Term Macroeconomic Forecasts 25
Chapter 4: Business Environment 29
SWOT Analysis 29
BMI Business Environment Risk Ratings 29
Investment Climate 30
Talent Migration And Competition Laws Key Risks
Talent migration is becoming a serious threat to businesses that are heavily reliant on skilled labour
Business Environment Outlook 31
Table: BMI Business And Operation Risk Ratings 31
Institutions 32
Table: BMI Legal Framework Rating 32
Infrastructure 33
Table: Labour Force Quality 34
Market Orientation 35
TABLE: ANNUAL FDI INFLOWS 35
Table: Trade And Investment Ratings 36
Table: Top Ex port Destinations (US $mn) 37
Chapter 5: Key Sectors 39
Pharmaceuticals 39
Table: Generic Drug Sales Indicators 2007-2015 40
Table: OTC Medicine Sales Indicators 2007-2015 40
Table: Medical Devices Sales Indicators 2007-2015 41
Table: Patented Drug Market Indicators 2007-2015 42
Table: Prescription Drug Sales Indicators 2007-2015 42
Telecommunications 44
Table: Telecoms Sector – Internet – Historical Data And Forecasts 44
Table: Telecoms Sector – Fixed-Line – Historical Data And Forecasts 44
Table: Telecoms Sector – Mobile – Historical Data And Forecasts 45
Other Key Sectors 46
Table: Defence & Security Sector Key Indicators 46
Table: Autos Sector Key Indicators 46
Table: Oil & Gas Sector Key Indicators 46
Table: Infrastructure Sector Key Indicators 47
Table: Food & Drink Sector Key Indicators 47
Table: Freight Transport Sector Key Indicators 47
Chapter 6: BMI Global Assumptions 49
Global Outlook 49
TABLE: GLOBAL ASSUMPTIONS 49
Table: EMERGING MARKETS AGGREGATE GROWTH 50
Table: DEVELOPED STATES REAL GDP GROWTH FORECAST 51
Table: REAL GDP GROWTH CONSENSUS FORECASTS 5
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