Economic Briefing 4 August 2007

Presentation Outline Indicators of selected countries Malaysia’s key economic indicators MIER 2Q07 Surveys Near-term outlook Indicators of selected countries Malaysia’s key economic indicators MIER 2Q07 Surveys Near-term outlook

GDP Growth (%)

Domestic Investment (% of GDP)

Export Growth (%)

CAB as % of GDP

FDI Inflows US$ billion

Fiscal Balance (% of GDP)

Foreign Reserves (US$ billion)

Inflation Rate (%) 58.5%20.5%

Interest Rate (6m FD,%)

Non-Performing Loans (3-months arrears)

Unemployment Rate (%)

Real Effective Exchange Rate (2000=100)

% Change in Stock Indices as at 11 th July’07, since Jan’07

Debt Service Ratio (% of exports)

Relative Productivity countryProductivity growth (%) Productivity in constant US$ China9.72,885 Indonesia6.42,128 India6.01,276 Malaysia3.711,716 Korea3.728,956 Thailand3.54,454 USA1.577,989 Singapore1.248,782

MALAYSIA’s KEY ECONOMIC INDICATORS Leading index External trade Exports to major partners Import sources Industrial Production Index (IPI) Foreign direct investments (BOP) Monetary indicators Inflation Exchange rates External reserves Unemployment Productivity performance MIER survey trends Leading index External trade Exports to major partners Import sources Industrial Production Index (IPI) Foreign direct investments (BOP) Monetary indicators Inflation Exchange rates External reserves Unemployment Productivity performance MIER survey trends

Composite Indices & GDP Growth %change yoy

Malaysia: Exports, Imports and Trade Balance

Imports by Category

External Trade exports dominated mainly by manufactures, especially E&E export structure remain unchanged but value-added have increased Manufactured goods E&E Palm oil Oil+LNG Source: DOSM

Exports to Major Partners traditional markets for Malaysia: US, Singapore, EU and Japan Singapore, EU and Japan show declining market share China account for an increasing share of Malaysia’s exports USA Singapore EU Japan China Source: DOSM

Foreign Direct Investments FDI (from BOP), although increasing, still far from pre- crisis levels Malaysian investment abroad rising portfolio flows remain volatile Source: DOS

Foreign Approvals in Manufacturing total of 571 projects approved in 2006, level of FDI approved highest to date foreign investments amount >RM20 billion (43.9% of total) Japan largest source of investments USA (RHS) Singapore China Japan Total Approvals (LHS) UK Source: MIDA

Foreign Approvals by Country, Jan-May’07 Source: MIDA

Foreign Approvals by Industry, Jan-May’07 Source: MIDA

Malaysia: Industrial Production Index (IPI)

Inflation Rate inflation soften following peak of 4.8% in March’06 due to higher price of fuel core inflation also trending generally lower Source: BNM

Monetary Indicators Moderate growth in M1, M2 and M3 Source: BNM

RM vs. Major Currencies Source: BNM

RM vs. Regional Currencies Source: BNM

Current Account Balance current account surplus still sizeable, at 17.8% of GNP in 2006

Foreign Reserves international reserves at a sizable US$98.4 billion in June 2007 equivalent to nearly 8.9 months of retained imports & 8.7 times the short- term external debt Source: BNM

Unemployment Rate employment rose an average of 3.3%pa with 1.6 million jobs created between Source: DOSM

Productivity Performance favourable productivity growth thanks to continuous efforts to enhance productivity and high capacity utilisation in both domestic and export- oriented industries Source: NPC

Malaysia: Total Loan and Deposit Growth

Malaysia: Loans Approved & Disbursed

Household Loans to GDP (%)

Real Interest Rate (%) Inflation 3mF D

NPLs/Total Loans Ratio & Capital Adequacy Ratio

Malaysia: External Debt RM billion

MIER 2Q07 INDICES

The Business Conditions Index (BCI)

Business Conditions Survey Business Conditions Survey on firmer footing BCI chalked an impressive 16.6 points to uptick in sales pickup in output activities higher local orders turnaround in export orders points

BCI and Quarterly GDP Growth % GDP growth BCI Quarter BCI GDP GDP y-o-y q-q 2Q Q Q Q Q Q Q Q Q Q

Production Production shifting to higher gear 44% increased production, higher than 26% in 1Q07 output of wood and wood- based products continue to accelerate (75% reported increase) increases also observed in food and beverage, textiles and apparel, paper and paper products, chemicals and chemical products, non- metallic products, basic metal and metallic products % responded ‘better’

Capacity Utilisation Capacity Utilisation up a notch capacity utilisation averaged 80.4 from the previous reading of 79.6 industries like paper and paper products, non- metallic products maintained capacity between % chemicals and chemical products, rubber and rubber-based products also shifted to near-full capacity % responding positively

Capital Investment Capital Investment going strong 28% reveal higher investments, edging up from 22% in 1Q07 firms from food and beverage, textiles and apparel committed more funds for capital investment % responding positively

Inventories Inventories smooth flow 19% reported fatter stockpiles, lower than 27% in previous quarter stocks running lower for textiles and apparel and plastics and plastic products % responded ‘higher’ stocks

The Consumer Sentiments Index The Consumer Sentiments Index (CSI)

Consumer Sentiments Index (CSI) no let-up in confidence CSI rises to points in 2Q07, from points in 2Q06 and in 1Q07 jobs and incomes lift sentiments CSI

COMPONENTS OF CONSUMER SENTIMENTS  incomes stable in second quarter and expected to pick up in the third quarter  good momentum of employment prospects in coming months  incomes stable in second quarter and expected to pick up in the third quarter  good momentum of employment prospects in coming months % responded ‘better’

Spending plans high on consumers’ agenda  personal computers most sought-after, followed by cars and furniture  houses still holding up; plans strongest in the eastern region  public sector wage hike and mega sale carnival boost spending plans

Inflationary Expectations a big worry  82% of respondents frown over higher prices in the next 6 months, up from 76% in 1Q07, down from 85% in 2006  anxieties rise in middle- income group and eastern region  82% of respondents frown over higher prices in the next 6 months, up from 76% in 1Q07, down from 85% in 2006  anxieties rise in middle- income group and eastern region

BCI, CSI, TEC & GDP Growth

MIER’s Sectoral Indices

NEAR-TERM OUTLOOK World economy Real GDP growth exports of goods and services imports of goods and services private investment public investment growth by sector inflation unemployment World economy Real GDP growth exports of goods and services imports of goods and services private investment public investment growth by sector inflation unemployment

World Economy

Real GDP Growth Malaysian economy expected to ease somewhat given the uncertainty in the global outlook for 2007 GDP projected to grow by 5.7% in 2007 (06: 5.9%) Malaysian economy expected to ease somewhat given the uncertainty in the global outlook for 2007 GDP projected to grow by 5.7% in 2007 (06: 5.9%) Source: DOSM, MIER

Exports and Imports export growth in 2007 expected to decelerate (‘07:5.0%) as growth in developed countries softens imports to moderate (‘07:6.8%), in line with softer export growth export growth in 2007 expected to decelerate (‘07:5.0%) as growth in developed countries softens imports to moderate (‘07:6.8%), in line with softer export growth Source: DOSM, MIER

Private and Public Consumption private consumption to stay resilient (‘07:6.6%) though moderating consumer sentiments affected by higher living expenses private consumption to stay resilient (‘07:6.6%) though moderating consumer sentiments affected by higher living expenses Source: DOSM, MIER

Private and Public Investment private investment to remain key driver (‘07:10.3%) expansion in public investment (‘07:11.5%) driven by the 9MP private investment to remain key driver (‘07:10.3%) expansion in public investment (‘07:11.5%) driven by the 9MP Source: DOSM, MIER

Federal Government Fiscal Balance (% of GDP) %

Growth by Sector slower growth for manufacturing as export demand eases new infrastructure projects to help rebound in construction mining to grow modestly thanks to sustained demand for petroleum and natural gas slower growth for manufacturing as export demand eases new infrastructure projects to help rebound in construction mining to grow modestly thanks to sustained demand for petroleum and natural gas Source: DOSM, MIER

Inflation and Unemployment inflation pressures to moderate (‘07:2.4%) unemployment to remain low (‘07:3.5%) inflation pressures to moderate (‘07:2.4%) unemployment to remain low (‘07:3.5%) Source: DOSM, MIER

Europe’s & Japan’s growth falter DOWNSIDE RISKS DownsideRisks Global imbalance worsening US economy slower than 2.1% in ‘07 Oil price overshooting Terrorist threats rising

ISSUES & CONCERNS Economy underperforming Jobless growth Domestic sector not investing enough Declining private consumption expenditure Growing income disparity Inadequate EPF savings for old age Brain drain Credit-card bankruptcies on the rise Too much dependence on immigrant workers Vulnerability to crisis Economy underperforming Jobless growth Domestic sector not investing enough Declining private consumption expenditure Growing income disparity Inadequate EPF savings for old age Brain drain Credit-card bankruptcies on the rise Too much dependence on immigrant workers Vulnerability to crisis