- 4 months ago
Maybank Investment Bank has maintained Malaysia’s 2025 real GDP growth forecast at +4.1%, revised down from the initial +4.9% due to weaker-than-expected 1Q performance and global trade tensions. The outlook reflects anticipated moderation in growth for the rest of the year, influenced by base effects and softening economic indicators, alongside a slower global growth projection of +2.7%.
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NewsTranscript
00:00Good morning, everyone. I'll go very quickly on economic development and outlook. So, obviously,
00:17again, stating the obvious, as mentioned by Shirley, just now trade-related uncertainties
00:21remain high when we look at these indices on trade policy uncertainty and world trade uncertainty.
00:28And I think not really surprising because while there were some positives or upsides from
00:35the escalation in US-China, tensions on trade and tariffs, as well as emerging deals between US and
00:44some of the trading partners like UK, Vietnam, Indonesia recently, there's still sort of risk
00:51and uncertainties that we need to keep an eye on. Obviously, the main concern is, are we going
00:59to see a risk of escalation in trade tension, evented for tariff wars, especially between
01:04US and trading partners that are unhappy about the tariff that will be implemented on 1st of
01:13markets following the letters from the White House. For example, EU Mexico suddenly is being
01:19subjected to facing higher tariffs at 30%. And also, there is this sense that Trump is weaponizing
01:27tariffs on certain countries or blocks of countries that, for whatever reason, is not happy with,
01:33like the threat of 10% additional tariffs on BRICS, 50% on Brazil, 100% on Russia and trade partners,
01:42and there's lingering uncertainties concerning especially product-specific or sector-specific
01:47tariffs. We saw the unpredictability in terms of the surprise doubling of tariffs on imported
01:53steel and aluminum from 25% to 50%. There's going to be a 50% tariff on copper come 1st of August.
02:02There's a threat of 100% tariff on pharmaceutical. Initially, implementation timeframe for that was 12
02:10to 18 months, but recent statement seems to suggest that it can come as soon as 1st August. And we are still
02:17waiting for a decision with regards to tariff on semiconductor and electronic products, including
02:23smartphones. But looking at sort of broad indicators, high-frequency indicators on economic impact so far,
02:32and here we are really paying attention on the Purchasing Managers Index or PMI data on manufacturing
02:40PMI. Globally, we saw like what happened in the run-up to the Trump 1.0 tariff during 2018-2019. There was the
02:50front-loading in manufacturing and trade ahead of tariff deadlines. In particular, if you look at the chart on the right-hand side,
02:58the US total imports surge during fourth quarter of last year and first quarter of this year, but slum in April and May. And who
03:07knows, there might be a rerun of this front-loading before 1st August. So it's going to be kind of choppy until we get
03:15clarity with regards to tariffs that countries are going to have to pay to US and also tariffs on products. With regards to services, part of the
03:27economy, we see softening just as what we saw during Trump 1.0. This is not surprising as consumers and businesses
03:36obviously turn cautious given the uncertainty with regards to trade and tariffs. But I think the services economy is still expanding. The
03:45indices remain above 50 to some extent because of mitigation from, for example, interest rate cuts that are happening globally
03:55right now. So that's sort of mitigating the downside. So overall, in terms of the combined manufacturing and services PMIs, the composite global
04:08PMIs, the net effect is that of slowing growth. At the same time, I think in terms of growth for the global economy, we are looking at
04:22it to go sub 3% this year, 2.7% versus average of I think around 3.5% or 3.4% last three years. The key drivers are unsurprising the expectation of
04:37moderate growth in the U.S. and to some extent China as well as the continued relative underperformance of other major
04:46economies like those in Europe and Japan. ASEAN would not be spared from the external headwinds. There will be impact on the
04:56growth this year relative to last year. Having said that, I think what is interesting to note is ASEAN's
05:07seems to be weathering the U.S. reciprocal tariff uncertainties and shocks. In particular, when we look at export numbers, not as bad as
05:15fiat. Whether you look at it in terms of total exports or exports to major markets and key export products like electronics. And at the same time, I think another
05:29factor that's providing ASEAN with means to weather U.S. tariff uncertainties is the fact that this year, maybe with the exception of Vietnam, the rest of ASEAN economies have been under cutting or monetary policy easing mode. Of course, yesterday, we had another 25 basis point cut by Indonesian Central Bank. Last week, we had a
05:58Bank Negara cutting cutting rates by 25 basis point as well. And I think what providing regional central banks the means of space to cut interest rate is because of inflation so far has been benign. And at the same time, our currencies has actually strengthened against the U.S. dollar. Again, maybe with the notable exception of Vietnam, where the dong has been coming down and that explains why Vietnam so far has not
06:26joined the interest rate cut bandwagon that's happening across ASEAN at the moment. Obviously, interest rate cuts will be positive for consumer spending. Obviously, the biggest component of GDP for ASEAN economies. We have seen even up to the first quarter of this year based on GDP numbers. There's resilience and
06:49public consumption in private consumption in Malaysia, Philippines, Indonesia. But looking at the higher frequency numbers like retail sales, we are also seeing improvement in the retail sales for Vietnam as well as Singapore. And I think the story about China plus one maybe not over yet. And certainly, if you look at the data over the past one year, one and a half year, there's still this trend of U.S.
07:19U.S. importing less from China but importing more from ASEAN in terms of shares of U.S. total imports. And what is equally interesting is the investment impact from all this reshoring, unshoring, French shoring and whatnot. The supply chain
07:39and reconfiguration, the FDI relocation seems to continue into this year based on the trend in imports of capital goods. And I think in this regard, Malaysia stands out significantly in terms of the search in its imports of capital goods.
07:57I think also maybe people tend to focus too much on absolute tariff numbers, but it's also important to look at relative tariff as well, particularly vis-à-vis China, which I think on the basis of current information, still favorable to ASEAN.
08:14And even if we are to look at current tariffs on a weighted average basis, or whether we're going to look at it in terms of the likelihood of where our tariff is going to be based on certain assumptions about whether or not we're going to get continuation of exemptions on some of the key export products,
08:34or whether there will be tariffs on specific products. I think generally, ASEAN countries, particularly the like of Philippines, Malaysia, Singapore, Indonesia, still hold a considerable advantage over China in terms of tariffs that is being charged by the U.S.
08:56For Malaysia, we are maintaining our forecast of 4.1% growth this year. So that's down one full percentage point from last year's average of 5.1%. To note, we have already revised our GDP number twice. First was in April, early April, following the Liberation Day announcement of reciprocal tariff, where we are affecting the impact of a 24% tariff comes, I think, 9 July.
09:23Although that deadline of reciprocal tariff has been extended by another three, three and a half weeks, first August at 25%. So not much different in terms of tariff that is being, that potential tariff that Malaysia will face come first August.
09:41But we also still have some time left to cobble up some sort of negotiation and deal with U.S. to get to a better landing as far as tariff is concerned.
09:52We also revised, again, our GDP growth forecast following the release of first quarter 2025, GDP of 4.4%, which came in a bit short of our estimates.
10:05So at this point, we just do not see any reason to make further adjustment in our growth forecast.
10:14But I think maybe to stress that by and large, the impact of the impact on Malaysia's growth this year is largely due to the external headwinds.
10:27And I think that is being signaled or flagged by the indicators like imports of intermediate goods, which have a very good correlation with indicators on manufacturing exports, manufacturing production index, as well as manufacturing GDP.
10:42But domestic tailwinds will be key for the economy to stay on growth path.
10:49And I think if you look at the quarterly GDP numbers since first quarter of last year, up to the first quarter of this year,
10:55domestic demand has been a key contributor, not only key, but consistent, strong contributor to Malaysia's GDP growth.
11:04And if you look at the breakdown of domestic demand, I think in particular, private consumption and investment, especially private investment, has been a most significant contributor to year-on-year GDP growth so far.
11:19I think if we look at the chart on the left-hand side that shows you the relationship between retail trade index, as well as real private consumption component of GDP, very well correlated.
11:32And the signalling year-to-date is, you know, there's this steady momentum in terms of consumer spending growth.
11:42And I think a factor contributing to this is actually we have income growth and we have a healthy job market.
11:50Unemployment rate, I think the first two months of last quarter at 3% is even slightly lower than what it was before the pandemic.
12:00And I think equally interesting is when we look at the gross contribution to the EBF, first quarter numbers was actually an all-time high, suggesting that we have this combination of job growth that is contributing to the drop in unemployment rate, as well as income growth.
12:18And the income also is being supported by various measures such as the civil service pay and pension revision, the minimum wage hike, the increased allocation in budget 2025 for cash end-outs.
12:34And, you know, who knows, this sort of good news that has been flagged by Prime Minister a few days ago might pertain to additional financial system or cash end-outs to eligible individuals and households.
12:49Also, I think what's supporting consumer spending growth is discontinued recovery post-pandemic of tourism.
13:00The other thing that I want to highlight about domestic tailwinds is investment upcycle still intact.
13:05Looking at first quarter numbers in terms of investment approval, still maintaining sort of the momentum, no indication of things coming off.
13:17Certainly because of the continued upside, particularly in terms of foreign direct investment.
13:24And I think by sectors continue to be dominated by technology, which I guess is inclusive of not just electronics, as in semiconductors, but also data centers and cloud infrastructure.
13:40I think this year, additional sort of support for the momentum in approved investment could be JSSEZ impact.
13:50If you look at Johor's first quarter 2025 approved investment, 30 billion suggests that, you know, the state government forecast of 60 to 100 billion this year in terms of approved investment is realistic.
14:05Overall, I think we're also seeing evidence that approved investment are being realized as per the search and imports of capital goods and robust growth in the banking system financing for industrial buildings, factories and land.
14:23I guess with regards to policy measures, especially to mitigate the impact of Trump tariffs on trade with U.S.
14:38I think we need to look into measures like trade deepening and diversifications.
14:43I think in ASEAN, the scope to deepen intra-ASEAN trade currently hovers around 22% of total ASEAN trade and compare that against the ratios for intra-EU or intra-USMCA at 60% and 49%.
14:59We are a bit low.
15:02Of course, there's a whole bunch of free trade agreements that have been negotiated between Malaysia, ASEAN, KIT and its key trading partners such as EU, South Korea and Gulf countries cooperation.
15:13And I think we also need to build on the existing multilateral and multilateral trade agreements and blocs like CP, TPP, RCEP and BRICS+.
15:23I think equally interesting, maybe a pitch by us to U.S. in terms of current ongoing negotiation is to address certain issues that has been raised by the U.S. side.
15:39And one of it is issues of attempts to circumvent U.S. tariff through transshipment to U.S. via Malaysia.
15:48I think METI has announced back in early May they will now be the sole issuer of all non-preferential certificates of origin and PCOs basically to end the abuse of these NPCOs that are being issued by business council chambers and association that were appointed by METI previously.
16:11And the more recent announcement on Monday was effective immediately.
16:17All exports, transshipments, transits of high-performance AI chips from the U.S. will require a permit under the Strategic Trade Act.
16:27So I think this is consistent, as I said, with one of the pillars in Malaysia, a trade and direct negotiation with U.S., which is to strengthen technological safeguards and security.
16:37Obviously, the other key policy response has been on monetary policy side by Bank Negara.
16:46Of course, earlier on May, there was a cut in statutory reserve requirement.
16:51And last week, Bank Negara cut overnight policy rate by 25 basis points to 2.75%, which we estimate can raise GDP growth by as much as a cumulative 0.4 to 0.45 percentage point over 6 to 12 months.
17:10Eyes will be on fiscal policy and reforms too.
17:15So, so far, if you look at the value of budget deficit on a cumulative basis, the dotted red line is above the grey line, which represents the trend throughout 2024.
17:29Similarly, if we look at budget deficit as a percentage of GDP on cumulative basis, currently, the latest figure is first quarter.
17:37Again, the dotted red bar there is less than the grey bar suggesting that we are on track to achieve lower budget deficit to GDP ratio of 3.8% this year,
17:53after the better than expected 4.1% last year, vis-a-vis the 4.3% target.
18:01Obviously, after things like the SST measures effective 1st July, I guess eyes is on these targeted around 95 petrol subsidy rationalization.
18:14I think there have been some tweaks back in October last year when budget 2025 was table, government was mentioning about rolling this out in mid-2025.
18:28So, I guess everybody assumed it could be in June or July, but now that timeframe has been adjusted to second half of 2025.
18:35We expect right now, it could be in August or September.
18:41In terms of scope, looks like there's also been a bit of a shift, maybe not so much on excluding T15, maybe much higher level of income to be excluded, probably T5.
18:55But one thing for sure, a non-citizen in Malaysia looks like it's going to be excluded from assessing subsidized R95 petrol because just starting with this group of people in the country,
19:10government can save 3 to 4 billion and I think it's very interesting in terms of mechanism the government is talking about usage of National ID or MyCard as one of the eligibility criteria.
19:21And we also feel that there is additional savings coming from the fact that the overall price right now is year-to-date lower than what it was vis-a-vis budget 2025 assumption of $75 to $80 per barrel.
19:38I mean, lastly, other key policy lookups.
19:40Second half of this year, 13 Malaysia plan coming on 31st July, National Investment Incentive Framework was mentioned in budget speech for 2025, last year in October, was said to be unveiled in current quarter.
19:58Similarly, we understand that Johor Singapura Special Economic Zone blueprint also come up this quarter and budget 2026 will be table on 10th October 2025.
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