Economic Outlook 2021 Copyright Reserved
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Chief Economist, Fiscal and Economics Division, Ministry of Finance Malaysia, Level 9, Centre Block, Kompleks Kementerian Kewangan, No. 5, Persiaran Perdana, Precint 2, Federal Government Administrative Centre, 62592 Putrajaya.
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PRINTED BY PERCETAKAN NASIONAL MALAYSIA BERHAD KUALA LUMPUR, 2020 www.printnasional.com.my email: [email protected] Tel.: 03-92366895 Fax: 03-92224773 FOREWORD
PRIME MINISTER MALAYSIA
“Safeguard lives and protect the livelihood of the rakyat”
The year 2020 began with nations around the world gearing up to contain the spread of COVID-19 pandemic by undertaking various measures which include enforcing movement restrictions and closing borders. The unprecedented situation has severely impeded overall global economic activities with the world economy experiencing a sharp contraction that economists believe to be worse than the Great Depression in the 1930s. Being a highly open economy, Malaysia’s GDP has also been adversely affected.
From the onset, the Government has been resolute in its stand to safeguard lives and protect the livelihood of the rakyat. We seek to address the pandemic through a systematic approach that focuses on three pillars: safeguard the rakyat, support businesses and finally, strengthen the economy. These three pillars underline all subsequent economic stimulus packages that we have unveiled throughout the year.
Apart from implementing various stages of the Movement Control Order (MCO) since March 2020 to curb the transmission of COVID-19, the Government has embarked on a series of economic stimulus measures totalling RM305 billion entailing fiscal and non- fiscal measures. In this regard, the Economic Stimulus Package Prihatin Rakyat (PRIHATIN) totalling RM250 billion was unveiled in March 2020, followed closely by the PRIHATIN SME+ worth RM10 billion in April. In June, we announced the Short-Term Economic Recovery Plan (PENJANA) totalling RM35 billion and in September, we released the RM10 billion additional package, dubbed the PRIHATIN Supplementary Initiative Package (KITA PRIHATIN).
Under the PRIHATIN package, the nation’s healthcare services were strengthened by additional allocation for among others, medical equipment, enhancing testing capacity and developing the MySejahtera application for contact tracing. PRIHATIN also provided immediate financial assistance to ease the cash flow burden of the rakyat and businesses, including employment retention support, deferment or restructuring of loan repayments as well as provision of credit facilities. Furthermore, we implemented the PRIHATIN SME+ to ensure the survival and ease the financial burden of SMEs.
When the COVID-19 curve flattened, the subsequent strategy was to reopen the economy by allowing the rakyat to return to work and companies to resume operations. Hence, the PENJANA package was announced in June to support the economy to operate in a new normal.
economic outlook 2021 iii The Government is ever ready to step in and provide additional assistance when deemed necessary. As such, realising that the rakyat and businesses still needed financial assistance, we swiftly announced in September this year an additional allocation to the existing initiatives, for example, the wage subsidy programme, the special grants to micro-companies and also assistance to the lower and middle-income households and individuals under the KITA PRIHATIN package.
LAKSANA, a unit under the Ministry of Finance, was established to ensure all economic stimulus programmes are implemented promptly and can effectively reach the targeted groups. The Unit has now evolved into a full-fledged agency in monitoring implementation outcomes of the stimulus programmes across 53 ministries and Government agencies nationwide.
Together, we have braved and withstood the unprecedented crisis as a nation. I would like to express my deepest gratitude to the frontliners whose efforts have saved countless lives and upheld Malaysia’s healthcare system as among the best in the world. Let me also thank the rakyat for their patience and close cooperation in combating the pandemic together. Alhamdulillah, we have achieved positive results thus far. However, we cannot afford to be complacent because the war against COVID-19 is not over yet, until and unless a vaccine has been found and is made available across the world.
Against the backdrop of strong economic fundamentals, a diversified economic base as well as proactive measures which have been implemented, we are confident in mitigating the economic impact arising from this crisis. Nevertheless, the socio-economic impact of the pandemic is expected to run its course until next year. Hence, the 2021 Budget will still focus on protecting lives and livelihood with additional measures to cope with the lingering effects of the pandemic on the economy as a whole. Insya-Allah, we will register a rebound in economic growth in 2021.
The crisis has given us the opportunity to look inwards, reassess our priorities and reset our targets. Moving forward, we will continue to revitalise and reform our economy for a sustainable future of shared prosperity under a new normal. It is our aspiration to steer the economy to a higher growth trajectory that is inclusive in nature. I would like to reiterate that this Government is committed to serving the rakyat and ensuring their well-being as well as supporting the businesses to thrive. Insya-Allah, we will be able to achieve this if we all work closely together.
TAN SRI HAJI MUHYIDDIN BIN HAJI MOHD YASSIN 6 November 2020
iv economic outlook 2021 PREFACE
MINISTER OF FINANCE MALAYSIA
COVID-19 has had a major impact on global growth, particularly due to its capacity to disrupt and dismantle development progress that has been made across social, business and economic fronts. For as long as a vaccine is yet to be found, the entire global economy – Malaysia included – remains at its mercy. At the heart of this unprecedented economic challenge is the consequential threat to lives, as well as risk of increased poverty and long-term systemic damage to our socio-economic fabric.
It was against this backdrop that Malaysia instituted the Movement Control Order (MCO). Although the Malaysian economy lost an estimated RM2 billion each day while the MCO was in effect, the Government was decisive in crafting our own unique 6R Strategy, comprising six stages of Resolve, Resilient, Restart, Recovery, Revitalise and Reform, to help the nation cope.
Against a backdrop of many unknowns, the Government had to put together no less than four stimulus packages in record time to protect lives, businesses and the economy. Deciding on what would be sufficient was not easy. Our fiscal limitations needed to be matched with our fiscal muscle. One thing was clear, though: our response had to be fast and decisive. Hence, the RM250 billion PRIHATIN Economic Stimulus Package was born, incorporating a RM25 billion fiscal injection.
Subsequently, three additional packages followed: PRIHATIN SME+, PENJANA and KITA PRIHATIN in April, June and September respectively. All four packages – comprising fiscal and non-fiscal measures – totalled RM305 billion, or 21% of our gross domestic product (GDP). With the measures’ rollout being tracked and monitored by the Economic Stimulus Implementation and Coordination Unit Between National Agencies (LAKSANA), many lives were saved, livelihoods supported, and businesses remained afloat.
The MCO and its various iterations not only flattened our COVID-19 curve but also contributed to the deep contraction in the GDP by 8.3% in the first half of 2020. Nevertheless, month-to-month economic data clearly signals green shoots of recovery, with a rebound in production and trade figures, a decline in unemployment and a recovery in private consumption compared to the monthly data of the second quarter of 2020. The Government’s stimulus packages are expected to contribute over 4 percentage points to the nation’s GDP growth.
This momentum is expected to set the foundation for the nation’s GDP to grow by up to 7.5% in 2021. That achievement hinges heavily on the next phase in our 6R strategy – Revitalise – represented by Budget 2021. As a strategic plan for ensuring Malaysia’s
economic outlook 2021 v growth in the coming year, Budget 2021 seeks to balance healthcare capacity needs, while building upon the current economic recovery momentum together and developing better resilience for the future.
Meanwhile, it is important for us to not only adapt to this new norm, but also find growth opportunities. COVID-19 has accelerated the adoption of digitalisation by businesses, the education sector and society. Studies have estimated that the economic value of digital trade-enabled benefits to the Malaysian economy, if fully leveraged, could grow to RM222 billion by 2030 from RM31 billion in 2019. This presents a new growth trajectory for many service-based industries and supporting sectors like E&E, e-commerce and the gig economy. Another huge potential is in healthcare and its ancillary sectors. Medical products, services and equipment are expected to grow in the coming years.
Budget 2021 has been crafted across four broad principles, namely, caring for the people; steering the economy; enabling sustainable living and enhancing public service delivery. The Government will continue with its targeted initiatives to support lives and livelihoods while prioritising vulnerable groups.
Sustainability, as one of the key principles, will also lay the foundation for existing and fresh policies to be mapped against the UN Sustainable Development Goals (SDGs). Related to this, one of the sectors that is a natural fit into our sustainability aspiration is Islamic finance, which subscribes to Value-Based Intermediation principles, similar to Environmental, Social and Governance (ESG) principles. This could help grow the Islamic economy, through various concepts including wakaf, and in developing communities sustainably. On multiple other fronts, the Government also hopes to work closely with its agencies, the private sector and civil society to catalyse a higher, more sustainable growth trajectory from 2021 onwards.
The Government expects its fiscal deficit to reach 6% of GDP, the highest since the 2009 Global Financial Crisis, while the Federal Government's statutory debt is expected to rise to about 57% of GDP by end-2020, due to the four necessary economic stimulus packages. Nonetheless, the Government is committed to its fiscal responsibility agenda, in line with the goal of reducing the fiscal deficit to under 4% of GDP over the next three to four years.
Against the backdrop of a huge unknown that is outside our control, we have been focusing on aspects that we can and must control. Our economic fundamentals are still strong, our economic base sufficiently diversified, and we still have fiscal muscle. But above all, I believe the economic rebound in 2021 and beyond depends as much on our strategy, as it does on Malaysians’ indomitable spirit to work together and brave the unknown as one.
Thank you to all Malaysians for your past, present and future contribution in helping the nation face this enormous challenge. I am confident that together we can and will win this war against COVID-19, and emerge from this episode as a stronger nation, Insya- Allah.
SENATOR TENGKU DATO’ SRI ZAFRUL TENGKU ABDUL AZIZ 6 November 2020
vi economic outlook 2021 THE ECONOMY 2021 in constant 2015 prices (share to total in %)
Public Investment1 Exports of 4.1% Services 5.8% Public Consumption 8.0% Private Consumption 39.9% Private Investment1 9.7% DEMAND RM 2,225,935 MILLION
Exports of Goods 32.5%
Mining Construction 4.4% 2.8% Agriculture 4.8%
Imports of Services 7.0% Services 38.3%
SUPPLY RM 2,225,935 Manufacturing 14.9% MILLION
Imports 1Includes change in stocks of Goods Source: Ministry of Finance, Malaysia 27.8%
economic outlook 2021 vii
COVID-19 Fund 38,000 17,000 -55.3
CONTENTS
FOREWARD iii
PREFACE v
ACRONYMS AND ABBREVIATIONS xvii
CHAPTER 1 ECONOMIC MANAGEMENT AND PROSPECTS
Overview 5
Outlook 6
Feature Article 1.1 – COVID-19: Impact and Policy Responses 8
Issues and Challenges 12
Feature Article 1.2 – Labour Market Mismatch 13
Information Box 1.1 – Mapping the UN Sustainable Development Goals onto 19 the National Budget
Feature Article 1.3 – Assessing Housing Affordability in Malaysia 24
Strategic Initiatives – 2021 Budget 29
Information Box 1.2 – Social Safety Net in Malaysia 30
Conclusion 33
References 34
CHAPTER 2 GLOBAL ECONOMIC OUTLOOK
Overview 41
Global Economy 42
Information Box 2.1 – Response to the COVID-19 Pandemic by Selected 44 Multilateral Development Banks
Conclusion 59
References 60
CHAPTER 3 MACROECONOMIC OUTLOOK
Overview 71 xii economic outlook 2021 Sectoral 71
Feature Article 3.1 – Gig Economy 74
Feature Article 3.2 – Digitalisation in the Logistics Industry 79
Feature Article 3.3 – Small and Medium Enterprises: Building Resilience 83 to Weather Crises
Information Box 3.1 – The Importance of Commodity Sector to the 88 Malaysian Economy
Domestic Demand 92
Feature Article 3.4 – Shadow Economy in Malaysia 94
External Sector 97
Prices 102
Feature Article 3.5 – Dynamic Relationship Between Consumer and 104 Producer Price Indices
Labour Market 107
Conclusion 108
References 110
CHAPTER 4 MONETARY AND FINANCIAL DEVELOPMENTS
Overview 119
Monetary Development 119
Performance of Ringgit 120
Banking Sector Performance 120
Feature Article 4.1 – Digital Banks in Malaysia 123
Capital Market Performance 126
Information Box 4.1 – Key Capital Market Measures 130
Islamic Banking and Capital Market Performance 131
Conclusion 132
References 133
STATISTICAL TABLES 135
ORGANISATION OF THE MINISTRY OF FINANCE MALAYSIA 177
economic outlook 2021 xiii FIGURES
The Economy 2021
Figure 2.1. Real GDP Growth for Global, Advanced Economies, and Emerging Market and 41 Developing Economies
Figure 2.2. Inflation Rate for Global, Advanced Economies, and Emerging Market and 42 Developing Economies
Figure 3.1. Selected Indicators for the Services Sector 73
Figure 3.2. Output of Manufacturing Sector 82
Figure 3.3. Supply Indicators of Residential Property 91
Figure 3.4. Malaysia House Price Index 91
Figure 3.5. Supply Indicators of Non-Residential Property 92
Figure 3.6. Savings-Investment Gap 94
Figure 3.7. Top 10 Trading Partners 99
Figure 3.8. International Reserves 102
Figure 3.9. CPI and PPI Trends 104
Figure 4.1. Monetary Aggregates 119
Figure 4.2. Performance of Ringgit Against Selected Currencies 120
Figure 4.3. Banking System: Impaired Loans and Net Impaired Loans Ratio 121
Figure 4.4. Malaysian Government Securities (MGS) Indicative Yields 127
Figure 4.5. Share of Foreign Holdings in Total MGS Outstanding 128
Figure 4.6. 5-Year Corporate Bond Yields 128
Figure 4.7. Performance of Bursa Malaysia 129
Figure 4.8. Performance of Selected Stock Markets 129
Figure 4.9. Global Sukuk Outstanding by Country 132
xiv economic outlook 2021 TABLES
Table 1.1. Economic Stimulus Packages 2020 6
Table 2.1. Selected Indicators for the United States 43
Table 2.2. Selected Indicators for the United Kingdom 44
Table 2.3. Selected Indicators for the Euro Area 50
Table 2.4. Selected Indicators for Germany 50
Table 2.5. Selected Indicators for France 51
Table 2.6. Selected Indicators for Japan 52
Table 2.7. Selected Indicators for Australia 53
Table 2.8. Selected Indicators for Republic of Korea 54
Table 2.9. Selected Indicators for China 54
Table 2.10. Selected Indicators for India 55
Table 2.11. Selected Indicators for ASEAN-5 56
Table 2.12. Selected Indicators for Indonesia 56
Table 2.13. Selected Indicators for Thailand 57
Table 2.14. Selected Indicators for Singapore 57
Table 2.15. Selected Indicators for Philippines 58
Table 3.1. GDP by Sector 71
Table 3.2. Services Sector Performance 72
Table 3.3. Manufacturing Production Index 83
Table 3.4. Value-added in the Agriculture Sector 87
Table 3.5. GDP by Aggregate Demand 93
Table 3.6 External Trade 98
Table 3.7. Gross Exports 98
Table 3.8. Exports of Manufactured Goods 99
Table 3.9. Gross Imports by End Use 100
Table 3.10. Current Account of the Balance of Payments 101
economic outlook 2021 xv Table 3.11. Consumer Price Index 103
Table 3.12. Producer Price Index 103
Table 3.13. Labour Market Indicators 107
Table 3.14. Employed Persons by Sector 108
Table 4.1. Factors Affecting M3 120
Table 4.2. Banking System: Loan Indicators 121
Table 4.3. Banking System: Loans Outstanding by Sector 122
Table 4.4. Funds Raised in the Capital Market 127
Table 4.5. New Issuance of Corporate Bonds by Sector 127
Table 4.6. Bursa Malaysia: Selected Indicators 129
Table 4.7. Islamic Banking: Key Indicators 131
xvi economic outlook 2021 ACRONYMS AND ABBREVIATIONS
11MP Eleventh Malaysia Plan, E&E electrical & electronics 2016 – 2020 EAC Economic Action Council 12MP Twelfth Malaysia Plan, 2021 – 2025 ECB European Central Bank EMDEs emerging market and 4G fourth-generation cellular developing economies network EU European Union 5G fifth-generation cellular network EUR euro
ADB Asian Development Bank FBM KLCI FTSE Bursa Malaysia Kuala Lumpur Composite Index AI artificial intelligence FDI foreign direct investment AIIB Asian Infrastructure Investment Bank Fed US Federal Reserve
APIs Application Programming GDP gross domestic product Interface GNI gross national income ASEAN Association of Southeast Asian GNS gross national saving Nations HIS & BA Household Income and Basic AUD Australian dollar Amenities Survey B40 bottom 40% of household IHLs Institutions of Higher Learning income group HOC Home Ownership Campaign BNM Bank Negara Malaysia IBRD International Bank for BOP balance of payments Reconstruction and Development bps basis points ICD Islamic Corporation for the CDA Currency Demand Approach Development of the Private Sector CFTA Comprehensive Free Trade Agreement ICIEC Islamic Corporation for the Insurance of Investment and CGE Computable General Export Credit Equilibrium ICM Islamic Capital Market CMCO Conditional Movement Control Order ICT information, communication and technology COVID-19 Coronavirus Disease 2019 ICSID International Centre for CPI Consumer Price Index Settlement of Investment Disputes CPO crude palm oil IDA International Development CSOs civil society organisations Association
DE development expenditure IDR Indonesian rupiah
DFIs Development Financial IFC International Finance Institutions Corporation
economic outlook 2021 xvii acronyms and abbreviations
ILO International Labour MIGA Multilateral Investment Organisation Guarantee Agency
IMF International Monetary Fund MIMIC Multiple Indicators Multiple Causes IoT Internet of Things MOF Ministry of Finance IPO Initial Public Offering MRT2 Mass Rapid Transit 2 IR4.0 Industrial Revolution 4.0 MTAR Momentum Threshold IRTI Islamic Research and Training Autoregressive Institute NGOs non-governmental IsDB Islamic Development Bank organisations IsDBG Islamic Development Bank NRE Ministry of Natural Resources Group and Environment ITFC International Islamic Trade Finance Corperation O&G oil and gas
KASA Ministry of Environment and OPEC Organization of the Petroleum Water Exporting Countries
KeTSA Ministry of Energy and Natural OPR Overnight Policy Rate Resources p.a. per annum KeTTHA Ministry of Energy, Green pb Technology and Water per barrel
KITA PRIHATIN Supplementary PENJANA National Economic Recovery PRIHATIN Initiative Package Plan
LAKSANA National Economic Stimulus PforR Program-for-Result Implementation and Inter PHP Philippine peso Agency Coordination Unit PLI LDMCs least developed member Poverty Line Income countries PPI Producer Price Index LNG liquefied natural gas PRGT Poverty Reduction and Growth LPI Logistics Performance Index Trust
LRT3 Light Rail Transit 3 PRIHATIN Prihatin Rakyat Economic Stimulus Package M&A merger and acquisition PRS Private Retirement Schemes M1 money supply R&D research and development M40 middle 40% of household income group RBI Reserve Bank of India
MCO Movement Control Order RCF Rapid Credit Facility
MDBs multilateral development RFI Rapid Financing Instrument banks RMCO Recovery Movement Control MGII Malaysian Government Order Investment Issues RPGT Real Property Gains Tax MGS Malaysian Government Securities RTO Rent-to-Own
xviii economic outlook 2021 acronyms and abbreviations
SDGs Sustainable Development THB Thai baht Goals TVECM Threshold Vector Error SDR Special Drawing Right Correction Model
SE shadow economy UI User Interface
SGD Singapore dollar UK United Kingdom
SLL Short-term Liquidity Line UN United Nations
SME Corp. SME Corporation Malaysia US United States Malaysia USD US dollar SMEs small and medium enterprises UX User Experience SOPs Standard Operating Procedures WBG World Bank Group
SRR Statutory Reserve Requirement WFH work from home
SSR Self-Sufficiency Ratio WHO World Health Organization
economic outlook 2021 xix chapter 1 Economic Management and Prospects
05 overview
06 outlook Feature Article 1.1 – COVID-19: Impact and Policy Responses
12 issues and challenges Feature Article 1.2 – Labour Market Mismatch
Information Box 1.1 – Mapping the UN Sustainable Development Goals onto the National Budget
Feature Article 1.3 – Assessing Housing Affordability in Malaysia
29 strategic initiatives – 2021 budget Information Box 1.2 – Social Safety Net in Malaysia
33 conclusion
34 references CHAPTER 1 SUMMARY: ECONOMIC MANAGEMENT AND PROSPECTS
Covid-19 Malaysia: Global Pandemic Economic Im actin Im actin Challenges ala ian t e ealt Restriction in the movement of Management u ine e an li eli oo Muted Global people and goods as well as of ala ian Growth provision of services & Prospects Volatile Commodity 11 March 2020 Prices
CHAIRED BY ECONOMIC ACTION COUNCIL: YAB PRIME MINISTER WITH MOF AND EPU AS JOINT SECRETARIAT
Roadmap for Roadmap for Budget 2021 th 2020 Budget 2021 enters 5 Immediate Way Forward — R stage – Revitalise ction for next 12 months 2021 OBJECTIVE: Address the challenges faced by Malaysia Implementation of 6R Strategy Monetary & Economic towards becoming an Resolve, Resilience, Restart, Financial Developments Management advanced and inclusive Recovery, Revitalise, Reform nation
2 arc iti ation Factor A ra atin Factor NEW ACT: Temporary I A I Measures for Government Financing (Coronavirus Disease 2019 (COVID-19)) A ril Overnight 2020 was passed in Supportive Policy Rate Pace of Global I A I Monetary Economic Recovery Parliament on 21 Statutory Reserve Policies September 2020. Requirement une Robust Escalating US-China A A Banking Sector tensions Measures are being formulated to enhance 23 e tem er IMPLEMENTATION Resilient Weak Commodity people’s livelihood, rejuvenate Capital Market Prices OF STIMULUS I A I A I PACKAGES UNDER the economy, ensure THE 6R STRATEGY sustainable development and Volatile Global Financial improve public service Markets delivery. Rakyat’s Prosperity, Business Continuity and Economic Resilience.