Sunday, November 18th, 2018


Bank Negara confident of 4.8% GDP growth in 2018, economists cautious

PETALING JAYA: Economists have mixed views on Malaysia's full-year gross domestic product (GDP) growth despite the central bank's confidence the economy will expand 4.8% this year.

Sunway University Business School's Professor of Economics Dr Yeah Kim Leng expects GDP growth for 2018 to come in at 4.7% to 4.8% while growth in 2019 could be better than this year if there is sustained global demand.

“For 2019, GDP (growth) would be closer to 5%. It may exceed that if the global economy holds up, in terms of lessening trade tension and strengthening of China's economy,” he told SunBiz.

However, Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew said this year's GDP growth is unlikely to hit 4.8%, as the quarterly expansions have been on the decline.

“We had 5.4%, 4.5% and 4.4% for the first three quarters (respectively) this year. It would require substantially stronger growth than what we saw in Q3 to hit 4.8% full-year growth,” he said.

The Malaysian economy grew by 4.4% in the third quarter, Bank Negara Malaysia (BNM) announced on Friday.

Pong said the final quarter of the year does not have the tail wind that would boost consumption and expects full-year growth to come in at 4.5% to 4.6%.

“For 2019, it is quite a challenge to forecast due to global growth slowing. We face headwinds from global growth as we are an export dependent economy. Net exports from goods and services are fluctuating,” he added.

Pong expects GDP growth in 2019 to be similar to 2018's, due to the unpredictability of global trade.

Commenting on the economic performance in Q3, Yeah said it was softer than expected, which weighed down on growth momentum.

“In the third quarter, services (sector) was good, largely due to private consumption. Growth was largely driven by the services and manufacturing sectors. As long as we can sustain the current growth momentum, a lower oil price will not affect GDP growth,” he said.

On the supply shocks that affected growth in the first nine months, Yeah said the situation is likely to improve as the unscheduled maintenance shutdowns are over, with less disruption and gradual rebound projected.

Pong, who expected Q3 GDP growth of 4%, said the 4.4% achieved was better than projected in view of the high base of 6.2% a year ago.

“In Q3, the challenge was the high base in Q3 last year, when we achieved GDP growth of 6.2%. It is difficult to achieve strong year-on-year growth. Many expected Q3 to be strong due to consumption spending following the removal of Goods and Services Tax (GST).

Retail numbers were stronger than what I expected. Consumption was stronger, therefore services was stronger,” he said.

He noted that private consumption was stronger at 9% in Q3 (8% in Q2), which is a rare occurrence, while public consumption was also stronger at 5.2% (3.1% in Q2).

Both Yeah and Pong cautioned that the softening in the plantation sector, especially palm oil prices, could affect smallholders' income, which would in turn affect consumer spending.

“If commodity prices fall, it will hit GDP. If CPO (crude palm oil) continues to be weak, it will have a negative impact on consumption. In particular, CPO and rubber. As it is now, commodity prices are weak and are still falling,” said Pong.

However, Yeah said the impact on consumer spending would not be that large in view of the government's spending and policies that remain supportive of consumption.

At a media briefing last Friday, BNM governor Datuk Nor Shamsiah Mohd Yunus said private consumption expanded strongly during the quarter following the zerorisation of GST.

“On the supply side, the services and manufacturing sectors supported growth, while the mining sector continued to be affected by production shocks.”

She said growth could have been 0.5 to 0.7 percentage point higher in the absence of commodity shocks, as 17% of the economy (agriculture, mining and quarrying) contracted by 1.3%.

Nonetheless, Nor Shamsiah believes the economy is on track to register a growth of 4.8% for 2018, supported by private sector activity with gradual recovery in commodity production lending support to growth.

Bank Negara confirms foreign insurers can contribute to B40 health scheme or reduce stake in local players

KUALA LUMPUR: Bank Negara Malaysia (BNM) has confirmed that foreign insurers may now opt to contribute to the B40 Health Protection Fund instead of reducing their stakes in Malaysian insurance firms.

BNM governor Datuk Nor Shamsiah Mohd Yunus said the directive for insurance companies to pare down their foreign shareholdings by 30% still stands but these firms now have the option to contribute to the fund instead.

“The objective of the divestment is to promote long-term benefits to Malaysia that will ultimately result in providing broader insurance coverage especially to the B40 group.

That was the objective of the divestment and that objective is still something that the affected foreign insurers would still need to comply with,” she told reporters at a media briefing on Friday.

“Each insurance company now has been given an option and they were supposed to revert to BNM and we will look, based on their plan, at the timeline that would be reasonable for them to comply with the plans that they submit,” she added.

The size of the B40 Health Protection Fund is expected to be above RM2 billion but details would depend on the scope of coverage to be provided, which is currently being discussed with the government.

“We hope to be able to finalise everything and announce the details in the early part of next year,” said Nor Shamsiah.

Last Monday, Finance Minister Lim Guan Eng said that foreign insurers would be given the option to participate in the new fund instead of paring down their stakes in local outfits, in a move to assist the B40 group.

So far, Singapore-listed Great Eastern Holdings Ltd has confirmed that it will put in RM2 billion as seed funding for the initiative.

BNM has set June 30 as the deadline for foreign insurers to comply with a maximum of 70% shareholding in local insurers. However, Nor Shamsiah in August this year, said that more flexibility will be accorded to foreign insurers to comply.

Apec leaders fail to agree on joint communique, Papua New Guinea to issue formal closing statement in ‘coming days’

PORT MORESBY: Papua New Guinea will release a formal closing statement for the regional Asia Pacific Economic Cooperation (Apec) summit in coming days, Prime Minister Peter O'Neill said today, as the 21-member body was unable to agree on a leaders' statement for the first time in its history.

In his closing comments to the forum, O'Neill also said the group was trying to ensure “free and open” trade by 2020.

Conflicting visions for the region has made it difficult to draft a summit communique, PNG Foreign Minister Rimbink Pato told Reuters earlier, as the United States and China revealed
competing ambitions for the region.

Earlier, a Chinese official said that Asia-Pacific leaders could not issue the traditional communique at the end of the regional forum. Papua New Guinea will instead issue a “chairman's statement”, said Zhang Shaogang, director-general of China's international department at the Ministry of Commerce.

In Beijing today, China's Foreign Ministry said no developing country would fall into a debt trap simply because of its cooperation with Beijing.

Chinese Foreign Ministry spokeswoman Hua Chunying made the comment in an online statement responding to remarks made by US Vice-President Mike Pence.

“No developing country will fall into debt difficulties because of cooperation with China,” Hua said. “On the contrary, cooperating with China helps these countries raise independent development capabilities and levels, and improves the lives of the local people.”

On Saturday, the US and China swapped barbs over trade, investment and regional security at the Apec summit.

Pence said there would be no end to American tariffs until China changed its ways, after its president, Xi Jinping, warned that the shadow of protectionism and unilateralism was hanging over global growth.

Pence took direct aim at Xi's flagship Belt and Road programme, which China has been promoting to Pacific nations at Apec, saying countries should not accept debt that compromised their sovereignty.

“We do not offer constricting belt or a one-way road,” he told the Apec CEO summit, a precursor to the official leaders' meeting, held on a cruise liner tethered in Port Moresby's
Fairfax Harbour.

China's efforts to win friends in the resource-rich Pacific have been watched warily by the traditionally influential powers in the region – Australia and the United States.

US President Donald Trump is not attending the Apec meeting, nor is his Russian counterpart, Vladimir Putin.

Xi, who is staying in Port Moresby, has been feted by Papua New Guinea officials and stoked Western concern on Friday when he held a meeting with Pacific island leaders, in which he pitched the Belt and Road initiative.

Speaking before Pence, Xi said there was no geopolitical agenda behind the project, which was unveiled in 2013 and aims to bolster a network of land and sea links with Southeast Asia, Central Asia, the Middle East, Europe and Africa.

“It does not exclude anyone. It is not an exclusive club closed to non-members, nor is it a trap as some people have labelled it.”

Also today, the US and three of its Pacific allies said they would work with Papua New Guinea to ensure most of the country had access to electricity by 2030, as Western powers seek to contain China's economic influence in the region.

Leaders of the US, Japan, Australia and New Zealand unveiled the plan which seeks to boost the power grid's reach to 70% of the population from 13% currently. – Reuters

Modi stacks Indian central bank board with allies to turn heat up on governor

Modi stacks Indian central bank board with allies

NEW DELHI/MUMBAI: As Prime Minister Narendra Modi’s government turns up the heat on the Reserve Bank of India (RBI) governor to do its bidding ahead of next year’s general election it is getting the central bank ‘s board to take on a much more powerful role, according to government officials and board members.

Now stacked with government nominees who can be counted on to support the administration, the board is being transformed from having a passive advisory role into a body that can exert pressure for policy change. Some economists fear it could threaten the bank’s independence.

Two board members told Reuters that government pressure for easier lending policies is likely to become abundantly clear at today’s board meeting the first to be held since the extent of a deep rift between the RBI and the government became public knowledge.

With the election due by May, and voters concerned about weak farm incomes and whether enough jobs are being created, Modi’s ruling Bharatiya Janata Party (BJP) is keen to stimulate the economy and sees the RBI’s hawkish stance as a barrier, said government officials and BJP allies.

The government has been pressing the Mumbai-based RBI and governor Urjit Patel to accede to a range of demands that could help to boost demand. They include making it easier and cheaper for small businesses to borrow, easing lending curbs on 11 state-run banks which had debt and capital adequacy issues, and providing more liquidity to shadow lenders.

They also want the government to have access to surplus reserves the RBI has built up – money that could be used for the administration’s populist programmes including boosts to rural wages, fuel subsidies and buying crops at a guaranteed minimum price.

The RBI has hit back by questioning whether the government wanted to destroy its autonomy and warning that when this happened in Argentina in 2010, financial markets took fright.

The Finance Ministry and RBI spokesmen declined to comment for this story.

In the past week there have been signs of an uneasy truce as some government officials indicated they didn’t want Patel to resign and would allow some issues to be kicked down the road.

But at the same time, Modi supporters have made it clear they want major policy change, and a senior finance ministry official said some government backers on the board had been given the green light to push hard at today’s meeting.

Spearheading that push is new board member S. Gurumurthy, a confidante of Modi’s. He is an accountant and columnist who was until recently co-convenor of the Swadeshi Jagaran Manch, the economic wing of the Hindu nationalist Rashtriya Swayamsevak Sangh, which is the fountainhead of the BJP.

In a speech last week, Gurumurthy lashed out at the RBI’s restrictions on bank lending, saying it was damaging the economy.

“We are a bank-driven economy … in a bank-driven economy if you restrict the banks, you are restricting the economy, you are restricting the flow of funds into the economy,” he said.

Under the colonial era RBI Act, the government can give the bank directions after consultations with the governor. That law establishes the primacy of the RBI board to do “all acts and things” subject to government directions. It also empowers New Delhi to dismiss any board member –including the governor.

In practice, the government has never invoked those sections of the act. For many decades, RBI governors have enjoyed operational freedom, though they have traditionally worked closely with the government, said an official directly aware of such consultations.

The board also doesn’t have direct influence over interest rate policy. In 2016, Modi agreed to establish a monetary policy committee to set interest rates based on whether India was meeting an inflation target. It consists of three RBI officials and three government-appointed members, with the central bank governor having the casting vote.

Modi supporters are confident newly appointed members of the RBI board with a “nationalist vision” could over time press it to cut interest rates, transfer surplus funds to the government and ease bank lending curbs.

The RBI board will seek more accountability from the governor, said Ashwani Mahajan, who is co-convenor of the Swadeshi Jagaran Manch.

“Now the RBI will be functioning in a more prudent manner looking at the specific needs of the country,” he said.

Provided Modi gets re-elected, the RBI board could ensure a greater role for banks “in the social and economic transformation of the country”, he added.

Modi has packed the RBI board in the past few months with people with links to his party and economists who favour greater overnment influence over the RBI.

It means that of 18 current members, five come from the government bureaucracy, two are finance ministry officials, and two have close links to Modi and the BJP. Four have a business background, and the other five are Patel and his four deputy governors. – Reuters

Breakdown at Sabah gas field hits govt revenue

PETALING JAYA: Malaysia’s gas exports have been suffering from severe disruption since the second quarter of 2018 following a production breakdown at the Kebabangan gas field in Sabah, according to Finance Minister Lim Guan Eng.

Hence, he said, the country has not fully benefited from the rising oil prices in the past six months.

“Major repairs and assessment works are still ongoing and production is only expected to return to full capacity by the middle of next year the latest,” Lim said in a statement.

He highlighted that the supply disruption has severely affected gross domestic product (GDP) growth and petroleum income tax revenue received by the government.

For the third quarter of 2018, petroleum income tax revenue declined 27% to RM2.79 billion from RM3.81 billion in the second quarter.

“The disruption could easily be seen in the industrial production index where the overall index on average grew 2.2% year-on-year (y-o-y) in the May-September period while the mining sub-index contracted by 5.3% y-o-y on average. The same supply shock is expected to continue until the middle of next year,” he added.

Given the less than expected revenue received by the federal government from rising energy prices so far, Lim said the continued economic resilience proves that Malaysia is not as dependent on energy prices as in the past.

“That economic resilience originates from a mature domestic financial market coupled with political stability provided by a new transparent government,” he noted.

Furthermore, he said that Malaysia has a well-diversified economy with 23% of its GDP contributed by the manufacturing sector and 55% by the services sector, while mining-related activities contributes only 9% to the GDP.

“Malaysia cannot be compared with Saudi Arabia, where mining forms 25% of the Saudi Arabian economy. It is inappropriate to compare the two countries side-by-side given the stark difference between the two economies,” he added.

Apec fails to reach consensus as US-China divide deepens

PORT MORESBY, Nov 18 — Asia-Pacific leaders failed to agree on a communique at a summit in Papua New Guinea today for the first time in their history as deep divisions between the United States and China over trade and investment stymied…

China: No developing country will fall into debt trap by cooperating with us

BEIJING, Nov 18 — China’s foreign ministry said today that no developing country would fall into a debt trap simply because of its cooperation with Beijing. Chinese Foreign Ministry spokeswoman Hua Chunying made the comment in an online…

Australia’s minister says translation glitches delay trade deal with Indonesia

JAKARTA, Nov 18 — Australia’s trade minister said translation issues were behind the delay of a billion-dollar free trade agreement with Indonesia, downplaying a friction between the countries over Australia’s possible Jerusalem embassy….

At what cost? Debate swirls on ‘giveaways’ after Amazon HQ deal

WASHINGTON, Nov 18 — As the winners of the biggest corporate prize in decades — the new Amazon headquarters — relished their victory, debate was still raging over the billions of dollars in incentives offered to attract the fast-growing US…