Quarterly update on Malaysian Economy

Quarterly update on Malaysian Economy can be downloaded from http://bit.ly/H8x7qc

Latest United Kingdom economic statistics

• RICS house price balance in January. House price balance fell 16% month-on-month in December.
• DCLG House Prices in December. Prices fell 0.3% year-on-year in November.
• Consumer Price Index in January. The index rose 4.2% year-on-year in December and was up 0.4% month-on-month.
• Retail Price Index in January. The index rose 4.8% year-on-year in December and edged up 0.4% month-on-month.

Latest Japan economic statistics

• Industrial production in December (final). Preliminary readings showed that production fell 4.1% year-on-year in November but rose 4% month-on-month.
• Capacity utilisation in December (final). Preliminary readings showed that utilisation fell 2.9% month-on-month in November.

Latest US statistics

• Retail sales in January. Sales in December edged up 0.1%, following a 0.4% rise in November and 0.7% gain in October.
• The National Federation of Independent Business Small Business Optimism Index in January. The December index rose 1.8 points to 93.8 for a fourth straight monthly advance.
• Import prices in January. Prices dipped 0.1% in December.
• Business inventories in December. Inventories rose 0.3% in November as did business sales, keeping the stock-to-sales ratio unchanged for a fifth straight month at a lean 1.27.

WEEKLY ECONOMIC COMMENTARY, 12 FEBRUARY 2012 (by DIFC)

See: http://www.difc.ae/difc-blogs/weekly-economic-commentary-february-12-2012

Greek troubles and S&P downgrades played havoc last week, causing the rally in Asian markets also to wind down towards end of the week, even as TOPIX and Hong Kong remained near six-month highs. Regional markets were mixed, with Egypt gaining and Saudi closing at a 21-month high yesterday alongside small declines in Qatar and Abu Dhabi exchanges. Among currencies, the euro climbed after the Greek austerity plan received the go-ahead from the Cabinet but dipped on the latest uncertainty about Parliament ratification while the Indian rupee had its worst week since Dec last year. Gold prices continued to decline for a second consecutive week while oil prices spiked to a six-month peak on Thursday given the tensions on Iran.

WEEKLY ECONOMIC COMMENTARY, 05 FEBRUARY 2012 (by DIFC)

(See: http://www.difc.ae/difc-blogs/weekly-economic-commentary-february-05-2012): The week started with a worldwide tumble when China's bourse reopened after a week with a 1.7% drop and Asian market sentiment was influenced by lower earnings. In general, just when you were thinking that the rebound in risky assets seen at the turn of the year is turning sour and the much touted January effect is over, markets recovered and ended the week on a positive note after the release of positive employment data in the US. Regional markets followed the global trend, with Saudi reaching a six-month high though the rally in Egypt was marred by recent riots. Among currencies, the dollar rose while its Asian counterparts gained on strong fund inflows. Oil prices were up last week; gold recorded its biggest one-day loss in over a month on Friday.
Global Developments

Indonesia: Surge in electronics (by OXFORD BUSINESS GROUP)

See http://www.oxfordbusinessgroup.com/: Rising demand is expected to have seen consumer electronics sales in Indonesia reach IR28trn ($3.1bn) in 2011, according to the country's producers association. While the figure underlines healthy growth in the sector, industry leaders say improved incentives and better infrastructure could lead to faster progress.

DIFC's Weekly Economic Commentary January 22, 2012

(See: http://www.difc.ae/difc-blogs/weekly-economic-commentary-january-22-2012): Stock markets reacted positively to China's growth data with ripples around the rest of the world, but after some directionless sessions the week ended on a softer tone in Europe and the US. European spreads came down somewhat but Portugal's 10yr yield reached 13.81%. Among regional markets, ADX fell to a five month low last week, while Saudi Arabian shares gained the most in more than five weeks yesterday, on strong Q4 corporate earnings. Euro fell from a two-week high against the dollar on Friday while emerging market currencies had a much favourable week. Oil prices dropped in spite of the tensions in Iran, on expectations of lower demand and ahead of the outcome of the Greek deal. Gold prices were up 1.7% compared to a week ago, though prices eased on Friday.

Japan posts first annual trade deficit in 30 years (By BBC)

(See: http://www.bbc.co.uk/news/business-16712816): Japan has announced its first annual trade deficit in more than 30 years, a setback for a country known for its exports including cars and electronics.

The deficit came in at 2.49 trillion yen ($32bn; £20bn) for 2011, the finance ministry said.

Japan's imports rose 12% and its exports fell 2.7%, compared to the previous year.

The decline in exports was attributed to the impact from the earthquake and tsunami on 11 March.

It reflects fundamental changes in Japan's economy, particularly among manufacturers”

Hideki Matsumura Japan Research Institute

The deficit underscores the pressure that Japanese exporters have come under since the disaster.

Factories were damaged and supply chains disrupted for major exporters including Toyota Motor and Sony.

Exporters' problems have been exacerbated by further disruptions to production in some of their Thailand facilities due to flooding, as well by a rising yen, which makes Japanese products more expensive overseas.

The uncertainty surrounding Europe and the US has caused global investors to turn to the yen, as a safer investment, causing it to appreciate.

Analysts warned the combination of these factors was hurting Japan's exporters as rivals from South Korea and other Asian nations compete in markets which Japanese companies had previously dominated.


"Japan is losing its competitiveness to produce domestically."


On the import side of the trade balance Japan has had to increase the amount of incoming energy supplies, as the Fukushima nuclear disaster saw many atomic power stations being taken offline.

As a result, crude oil imports surged 21.3% by value, liquefied natural gas imports rose 37.5% and petrochemical imports were up 39.5% compared to 2010, government figures showed.

Nuclear power previously accounted for about 30% of electricity generation in Japan.

But since the accident, Tokyo Electric Power and other utilities have been trying to restart their conventional power plants to meet energy needs.

Bank of Japan Governor Masaaki Shirakawa said on Tuesday that the trade deficit would not become a "firmly established trend" attributing it to "temporary factors" such as the increased demands after the earthquake.

However, given that Japan's major export markets, the US and Europe, are seen going into recession some analysts are forecasting that the trade deficit will continue.

Takuji Okubo of Societe Generale in Tokyo said Japan would see a trade deficit till 2014 because of "the combination of strong demand in Japan because of earthquake and reconstruction demand and weak demand outside of Japan in Europe and the US".

Indonesia keeps stacking its chips (By IFN)

(See IFN) INDONESIA: The country continues to ride high on its return to investment grade status following a second upgrade to its credit rating in the span of one month; this time by Moody’s.

Investment flows have already been picking up even before it received its first upgrade by Fitch in December last year; with foreign direct investment (FDI) hitting a record of US$19.3 billion in 2011, also the highest in Southeast Asia. Its FDI is also expected to rise another 25% this year.

Two out of three nods from the world’s leading rating agencies – S&P has yet to raise its rating, currently the highest level below investment grade – is certain to open up room for further investment inflows; and the Sukuk mart is expected to be among the sectors with the most to benefit.

“The interesting area for Indonesia here is Sukuk. For some Middle East buyers who could not invest earlier because it was not investment grade, this is a new thing for them, which is good," Guan Ong, the principal at Blue Rice Investment Management, a hedge fund that specializes in fixed income, was quoted as saying.

Indonesia’s stacked chips also could not have come at a better time, with the global economy looking the way it is. Furthermore, Moody’s has also noted that high-yield corporate bond issuances in Asia will remain “highly uncertain” in the next few months as “credit markets stay choppy” on concerns over European sovereigns and China’s corporate governance issues keeping investors cautious.

“Caution and uncertainty look to be the by-words for at least the early part of 2012; and while Asian corporates may make preparations for the reopening of the high yield bond markets, it will likely take a higher speculative-grade rated, existing issuer to break the deadlock and open the floodgates for smaller and first-time names to the market,” said Laura Acres, a vice-president and senior credit officer at Moody’s.

For Asia this year, what better name is there than Indonesia to set credit flowing?

The Philippines is Banking on tourism (by Oxford Business Group)

See http://www.oxfordbusinessgroup.com/: With 2011 having seen a spike in visitor arrivals, the Philippines’ tourism sector is moving ahead with plans to become a major engine for the country’s economic growth.

That this increase in numbers occurred at a time of global economic downturn, not to mention some turbulence in the sector’s leadership, is no small achievement. Although tourism currently accounts for only 11% of the country’s GDP, hopes are high that this number can grow significantly.

“I hope the 12% increase in tourism arrivals [in 2011] will mark the start of better things ahead for the country,” President Benigno Aquino III recently said. “The private and public sector must work together to promote tourism.”

Oxford Business Group Review of Malaysia

(See: www.oxfordbusinessgroup.com): With many sectors of the economy having performed solidly over the past 12 months, Malaysia is hoping for more of the same in 2012. Indeed, foreign direct investment (FDI) is up, inflation well contained, and the financial sector steady. However, at least some impact from the European debt crisis is expected, with demand for exports widely predicted to ease in 2012.

Though final figures have yet to be issued, it is expected that the Malaysian economy will have expanded by more than 5% in 2011. At the end of November, the Organisation for Economic and Cooperative Development (OECD) forecast that this solid rate of growth would continue for at least the next five years, predicting Malaysia’s GDP would expand by 5.3% in each of the next few years and hit 5.6% by 2016.

Governor Dr. Zeti Emphasises Value of Continuous Education as IBFIM Launches Latest Skills Upgrading Programme (by MIFC)

An important part of the human talent development function is continuous education and upgrading of skills and competencies - from senior management to down the chain. This is the message which Bank Negara Malaysia's Governor Dr. Zeti Akhtar Aziz stressed in her keynote address at the launching in December at Sasana Kijang of the latest such initiative, Islamic Banking and Finance Institute Malaysia (IBFIM) Islamic Finance Qualification Framework & Progression Route (IFQFPR), which focuses on 'Talent Development in Islamic Finance over the Next Decade'.

According to IBFIM, IFQFPR is an innovative training framework that provides a progressive structured route to the acquisition of the relevant knowledge for the different levels throughout the career of the workforce in the industry. Successful completion of the comprehensive series of programmes would lead to qualifications at three different levels. The modules of the programmes have been developed with extensive consultation with the industry. The framework also offers flexibility in learning, as participants can complete the modules at their own pace.

"Important in the offering of these programmes," explained Dr. Zeti, "is that there needs to be clarity in the qualification that is earned so that it avoids confusion with other qualifications offered by other centres of learning to those practitioners aspiring to gain qualifications in Islamic finance. Our resources for investment in human capital development for the industry must be optimised. This would enhance Malaysia's potential to become a centre of excellence for education in Islamic finance."

Islamic finance is the most rapidly growing financial market segment not only in Malaysia but also in several other jurisdictions. As such, advised Dr. Zeti, in a highly dynamic and challenging environment, talent development for the financial services industry has become an even more important agenda to ensure that its growth and development is supported by the necessary skills and capabilities.

Malaysian Islamic financial system is the most progressive, comprehensive and competitive. The market share of Islamic banking assets of total banking industry has grown from only 6.9 per cent in 2000 to 22 per cent in 2011. Islamic finance accounted for 2.1 per cent of GDP in 2009, as compared to only 0.3 per cent in 2000. This has led to greater job creation where employment in Islamic financial industry accounts for 11 per cent of total employment in the financial sector. Malaysia of course has also opened up its Islamic finance market to foreign players, and Malaysian Islamic financial institutions at the same time are expected to expand beyond national boundaries to increase economic and financial linkages with other parts of the world in the pursuit of more competitive returns and rewards.

"This rapid internationalisation of the financial system and technology advancement," maintained Dr. Zeti, "will demand a corresponding increase in quality skills and expertise of the industry. Talent upscaling will be even more important in the next decade, to steer the industry's advancement in the increasingly complex and competitive financial ecosystem. A strong and dynamic workforce will be one of the important pillars for the industry to remain stable and competitive. It will also serve as a catalyst to spur innovation."

BNM anticipates that over the next 10 years, a workforce of about 200,000 employees would be required, which is an increase of 56,000 people from the current 144,000 employees. There will therefore be strong demand across the financial sector, particularly for specialised skills in high growth and niche areas such as wealth management, Shariah advisory, corporate finance and investment advisory services.

Dr. Zeti identified several challenges for human capital development in the Islamic finance industry going forward:
• Human capital development needs to be comprehensive and holistic in meeting the requirements for all levels. It must meet the specific requirements of the workforce career progression, from the pre-employment stage, during employment and up to the leadership positions. Talent development solutions must also be for beyond the circle of the financial services community, to include other business communities, such as legal fraternity, Government officials and IT solution providers.
• The education and training programmes in Islamic finance needs to achieve the highest quality, be credible and globally recognised. To ensure the standards, the required infrastructure for standard setting and accreditation for Islamic finance training and education has now been put in place. The Asian Institute of Finance (AIF) is ready to provide accreditation to training programmes offered by training institutes following a rigorous assessment under the new Assessment and Accreditation Framework and to ensure the highest standard of the trainings offered. The Association for Chartered Islamic Finance Professionals, a body entrusted to raise the quality standards and professionalism of Islamic finance practitioners, would also contribute to achieve this objective.
• There needs to be greater partnerships and collaboration between the industry and academia to align training and development with the requirements of the industry. Greater involvement by the financial institutions is needed in designing the academic and training curriculum, and providing real business exposure and training through internship and sharing of experiences. Industry-universities partnership can also take the form of "summer school" programmes that emphasise on practical aspects of Islamic finance via business operation simulations. More structured continuous learning programmes are also needed for practitioners to sustain their professional competencies.
• Research is an important investment for long-term competitiveness of the industry and is a key driver for greater innovation. Joint research initiatives should extend beyond geographical boundaries, with cross-border initiatives and convergence of ideas. Further in-depth research on contemporary Shariah issues relating to risk mitigation, liquidity management and hedging would facilitate the generation of new ground-breaking developments in Islamic finance. Greater involvement of the industry is essential not only to provide funding support, but also to give perspectives that contribute to the implementation of the research output.

PM Mohd Najib Launches Malaysia's New Strategic Financial Sector Blueprint 2011-2020 (by MIFC)

Malaysian Prime Minister & Finance Minister Mohd Najib Abdul Razak launched Bank Negara Malaysia's Financial Sector Blueprint (FSBP) 2011-2020 at a ceremony in Sasana Kijang on 21 December 2011, in the presence of Minister of Finance II, Ahmad Husni Hanadzlah, and Bank Negara Malaysia's Governor Dr. Zeti Akhtar Aziz.

But in reality, the impact on the Islamic finance industry of the global financial crisis has been more indirect - more due to the economic impact in the markets in which they operate.

The Blueprint, themed "Strengthening Our Future" is a strategic plan that charts the future direction of the financial system as Malaysia transitions towards becoming a high value-added, high-income economy. It also positions the country to reap the benefits of increasing regional economic and financial integration, its leadership in Islamic finance to develop Malaysia as an international Islamic financial centre and the growing internationalisation of the Islamic finance industry.

In his speech, the Prime Minister described the Blueprint "a far-sighted vision of the systems and strategies we will need to put in place to ensure a more competitive, diversified and dynamic financial sector for the future. Built on the back of many years of strong performance, it is a blueprint designed to take Malaysia's financial sector to the next level as we continue together on the path towards developed nation status. To get there, we will need to forge deeper links between Malaysia and regional economies in other parts of the world. We will also need to break new ground in positioning Malaysia at the forefront of the international market in Islamic finance. I am confident this Blueprint will achieve both those things."

The Blueprint, stressed the Prime Minister, also complements the government's New Economic Model and Economic Transformation Programme, which provides for greater liberalisation of the services sector. Indeed the Blueprint itself outlines a strategic approach to the further liberalisation of the financial sector, which is not only necessary but is also an important means of enhancing the country's future growth and the strength, diversity and competitiveness of the financial sector.

"I want to see our financial sector playing a key role in the cross-border intermediation of Asia's financial funds, with Malaysia's financial institutions continuing to venture abroad and to replicate their domestic success in these new markets. As Islamic finance becomes an ever more important component of the global financial system, Malaysia should continue to develop and to capitalise on our world-beating expertise," he added.

The Blueprint is a comprehensive document focusing on new areas aimed at strengthening the competitiveness and efficiency of the financial sector and its potential role in facilitating Malaysia's ongoing economic transformation and greater regional economic and financial integration. It also comprises 69 recommendations aimed at helping the financial sector to meet the economic and financial realities of the coming decade and to achieve the vision for the financial sector in 2020.

Meanwhile, Dr. Zeti in her speech projected that emerging economies will assume a more significant role within the global economic landscape. By 2030, emerging economies are deemed to account for 60 per cent of total world output, from the current 40 per cent.

Together with other changes including in the domestic economy, the Malaysian financial system, she maintained, enters this new environment from a position of strength. Bank Negara's first Financial Sector Masterplan (FSMP) 2001-2010 indeed achieved all its objectives. During this decade Malaysia enacted wide ranging legislation and financial infrastructure that has given greater certainty and predictability in the financial system. This includes the Central Bank of Malaysia Act 2009 and the Financial Services Act which is expected to be tabled in Parliament in 2012.

This has led to Malaysia having today a deep and vibrant bond and sukuk market which is the largest in South East Asia and a comprehensive Islamic financial system that is recognised as among the most advanced in the world.

It is envisaged that by 2020, the financial system is expected to expand from the current 4.3 times to six times of GDP. Correspondingly, the financial sector contribution to nominal GDP is projected to rise from 8.6 per cent to between 10 to 12 per cent in 2020. More than half of total financing in 2020 will be raised through financial markets, while Islamic finance will continue to increase in prominence, growing at a faster pace to account for 40 per cent of total financing.

The Blueprint, explained Dr. Zeti, has adopted an integrated approach that reflects a financial sector that has increasing linkages between the various sub-sectors in the financial system. The recommendations, in the Blueprint are thus centred on achieving nine major areas:
• effective intermediation for a high value-added, high-income economy;
• the development of deep and dynamic financial markets;
• greater shared prosperity through financial inclusion;
• strengthening regional and international financial integration;
• internationalisation of Islamic finance;
• safeguarding the stability of the financial system;
• achieving greater economic efficiency through electronic payments;
• empowered consumers;
• and talent development for the financial sector.

While Malaysia has made significant inroads in becoming an international Islamic financial centre, efforts will continue to spearhead the internationalization of Islamic finance to facilitate greater cross-border Islamic financial activities. In strengthening the legal and Shariah frameworks and further advancing Malaysia's thought leadership in Islamic finance, a single legislated body to be the apex authority on Shariah matters in Islamic finance will be established.

Dr. Zeti stressed that in the Blueprint, financial liberalisation will be pursued in the best interests of Malaysia. According to her "The goals for financial liberalization are twofold: firstly, to improve allocative efficiency to productive economic activities, to increase the operational efficiency and lower further the intermediation costs, thus encouraging greater financial innovation. Secondly, to strengthen further Malaysia's economic and financial linkages with the region and other parts of the emerging world. Key recommendations in the Blueprint include more flexible limits on foreign participation in financial institutions, the issuance of new licences to financial institutions with specialised expertise that are able to contribute to Malaysia's economic aspirations and financial sector development."

Cementing Malaysia's position as Islamic financial hub (by IFN)

MALAYSIA: The government and the central bank, Bank Negara Malaysia (BNM), have launched the Financial Sector Blueprint 2011-2020 in a further effort to transform Malaysia's financial sector and economy; and cement the country's position as a global hub for Islamic finance.

The plan projects that Islamic financing will account for 40% of the country's total financing in 2020 from 29% in 2010. It also seeks to create a domestic system conducive for increasing international financial flows and hence, increase the internationalization of Islamic finance.

Among efforts identified to achieve this is the positioning of Malaysia; including the Labuan International Business and Financial Center, as a global re-Takaful hub.
The blueprint has also called for the presence of more diverse players in the local Islamic finance industry to aid the development of a wider range of products and services, with BNM to issue new Islamic banking and Takaful license only to institutions with specialized expertise.

Malaysia will allow foreign banks to own bigger stakes in local lenders, grant more licenses and loosen short-selling rules, seeking to triple its financial sector by the end of this decade, the central bank said.
In addition, the plan recommends the issuance of more Sukuk from the government and government-linked companies to improve the development of a benchmark yield curve and increase the country's issuer base. Other recommendations include the establishment of global alliances in Islamic finance.

Other initiatives under the plan include the development of Malaysia as a global platform for the listing and trading of Shariah compliant asset classes; in an effort to maximize the country's potential as an international Islamic financial market. This will be achieved by collaborating with other regulatory agencies.
The blueprint also calls for the establishment of alliances with commodity exchanges in other jurisdictions and the identification of different types of commodities to be used as underlying assets.

SEE IFN NEWS.

Eurozone agrees new 109bn euros Greek bailout

Leaders of the Eurozone countries have agreed a new bailout package for Greece worth 109bn euros ($155bn, £96.3bn).



For the first time, private lenders, including banks, are also pledging support which will give Greece easier repayment terms.

FULL REPORT PLEASE VISIT THIS BBC LINK BY CLICKING ON THIS

Moody's to review US triple-A debt rating

Ratings agency Moody's has said it may cut the US AAA debt rating, citing the "rising possibility" the US will default on its debt obligations.



The agency warned the likelihood the US would fail to raise its statutory debt limit in time to avert default was low but not insignificant.



It came as a fourth day of cross-party talks in Washington on the debt limit were said to have ended stormily.

President Barack Obama reportedly told a top Republican: "Enough is enough."


CLICK ON THIS LINK TO THE FULL BBC ARTICLE.

IMF urges Italy to enforce spending cuts

The International Monetary Fund (IMF) has asked Italy to ensure "decisive implementation" of spending cuts to reduce the country's debt.



Its comments come as concerns continue that Italy may be the next country to be affected by the debt crisis in the eurozone.

SEE BBC ARTICLE IN FULL. CLICK ON THIS LINK.

Eurozone ministers meeting to discuss debt concerns

Senior European Union officials are meeting later to discuss the eurozone's continuing debt woes.

The talks in Brussels were arranged over the weekend by European Council president Herman Van Rompuy. His spokesman denied that it was a crisis meeting.

SEE BBC ARTICLE ON FULL. CLICK ON THIS LINK

Bank Negara Malaysia decided to raise the Overnight Policy Rate (OPR) by 25 basis points to 3.00 percent

Full article: http://www.bnm.gov.my/index.php?ch=8&pg=14&ac=2253

Bank Negara Malaysia (5 May 2011): At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to raise the Overnight Policy Rate (OPR) by 25 basis points to 3.00 percent. The floor and ceiling rates of the corridor for the OPR are correspondingly raised to 2.75 percent and 3.25 percent respectively.

The global economic recovery has continued in the first quarter of the year, but the growth has been highly uneven across regions. Growth in the advanced economies during this period has remained modest. In the region, despite some moderation, the growth has remained strong, supported by robust domestic economic activity. Global inflation has, however, increased on account of rising energy and commodity prices. In several countries, further upward pressure on inflation has been exerted by domestic demand conditions. Although the global recovery is expected to continue going forward, downside risks have increased, arising from the potential for higher energy and commodity prices, possible supply disruptions following developments in Japan, and the heightened volatility in capital flows to emerging economies.

In the domestic economy, the latest indicators point towards the continued strengthening of private investment and sustained private consumption expenditure in the first quarter. The export performance also improved, supported by regional demand. Going forward, the assessment is for the Malaysian economy to remain firmly on a steady growth path, with growth improving gradually during the course of the year. Growth will be underpinned by the firm expansion of domestic demand. Sustained employment conditions and income growth is expected to provide support to private consumption, while private investment is projected to strengthen amidst the improved investment environment. The developments in Japan are expected to have a limited impact on the overall domestic economy. Positive prospects for the region and strong demand for commodities are expected to continue to support the Malaysian economy.

Domestic headline inflation has continued to increase, rising to 3% in March to average 2.8% for the first quarter of 2011. The increase was mainly due to higher food and fuel prices. The assessment is that supply factors will continue to be a key determinant affecting consumer prices. Global commodity and energy prices are projected to remain elevated during the year, with inflation in major trading partners also expected to rise further. There are also some signs that domestic demand factors could exert upward pressure on prices in the second half of the year.

With the economy firmly on a steady growth path, the MPC decided to adjust the degree of monetary accommodation. At the current OPR level, the stance of monetary policy remains supportive of growth. The future stance of monetary policy will depend on the assessment of the risk to growth and inflation prospects.