KUALA LUMPUR: Despite the uptick in the country’s exports in August, economists are of the view that trade activities will remain modest for the rest of the year and into 2017 amid a tepid global growth outlook.
“Exports will likely be outpaced by imports as domestic demand will likely remain a key driver of growth,” said RHB Research in a flash note issued late evening today. It expects the commodity trade surplus to widen slightly in tandem with a recovery in commodity prices after the end of El Nino, especially for liquefied natural gas, which generally lags crude oil prices by three to six months.
“As a result, this will likely translate into a larger merchandise trade surplus during the year,” the research firm said. Likewise, it said the services account is projected to record a slightly smaller deficit in 2017 as the tourism sector recovers gradually.
“These will, however, be partly offset by a larger deficit in the income account, contributed by higher repatriation of profits by multinational companies, following a spike in foreign direct investment this year,” it pointed out.
“Nevertheless, a relatively resilient growth in imports due to ongoing infrastructure spending could partially erode the trade surplus in 2017,” the firm said. Meanwhile, Nomura Research said the August trade data may have been distorted by holidays.
“Adjusted for this, we estimate export growth actually fell to -7.7% year-on-year (y-o-y) in August from 9.4% in July,” according to its research report today
Taken as a whole, Nomura Research said July–August exports still fell by 1.9% after growth of 1.6% in second quarter (2Q), suggesting external demand remains soft. “In volume terms, export growth also rose to 3.9% y-o-y in August from -2% in July, taking the July–August average to 1% from 4% in 2Q,” it added.
In terms of the current account surplus, RHB Research expects it to improve in 2017, but only modestly to RM20.2 billion or 1.6% of gross domestic product (GDP), from an estimate of RM15.9 billion or 1.3% of GDP in 2016. Nomura Research maintains its second half GDP growth projection of 4.1%, which suggests no improvement from the first half, in contrast with Bank Negara Malaysia (BNM)’s expectations.
The central bank expects the country’s second half GDP growth to pick up from 4.1% in the first half. “With both export and import growth slowing on average in July and August from second quarter, these suggest tighter fiscal policy will not be the only drag on growth,” the research firm said.
“We therefore maintain our forecast for another 25-basis-point policy rate cut by BNM to 2.75% in November, which is when we expect weakening growth momentum to become more visible,” it added. In contrast, JF Apex Research reckoned that the country’s export and import will post a positive growth of 1.6% and 3.9% respectively in September 2016.
This is premised on the impressive performance recorded in August as well as improved China’s Purchasing Managers’ Index (PMI) data in September this year, suggesting sustained economic growth. China is the country’s main trading partner.
“In addition, our trade performance will continue to be supported by resilient growth in electrical and electronic (E&E) products and sustainable growth in our manufacturing sector,” the research outfit said.
According to Statistics Department, Malaysia’s exports grew 1.5% to RM67.6 billion in August from a year earlier, as the nation sold more oil palm and E&E products. Crude oil and timber product exports also rose. The department said oil palm and E&E exports grew 19.7% and 3% respectively. Crude oil and timber-based exports rose 13.9% and 7.4% respectively.
