Westports in Port Klang. Malaysia's imports grew faster than exports in June.

09/08/2014 (The Star) - Malaysia's trade surplus narrowed to RM4bil in June from RM4.3bil in the same month last year after imports grew faster than exports.

The recorded trade surplus, lower by 8% year-on-year (yoy), is the lowest since August last year. On a monthly basis, the trade surplus dropped 29.7% from RM5.6bil in May.

Economists are expecting the trade surplus to linger at the low level throughout the year, with some of them raising concern of a trade deficit situation.

“If trade surpluses decline further, this will snap the country’s record of current account surpluses for the past 17 years,” says AllianceDBS Research economist Manokaran Mottain.

He notes that the last recorded trade deficit was in October 1997.

“Although it has not materialised now, we have to remain cautious, more so with the impending rumours of implementation of high speed rail project linking KL and Singapore,” he explains in a note to clients.

The balance of trade is the difference between the value of exports and imports.

When exports exceed imports it is recorded as a surplus while a deficit is registered when imports exceed exports.

Although the question of Malaysia slipping into a twin-deficit (fiscal and current account) scenario should no longer be relevant as the country’s trade surpluses had rebounded for the past months, the recent trade surplus result has sparked a new concern.

“Twin deficits will trigger a credit rating downgrade much sooner than expected,” Manokaran says.


The stock market fell in reaction to the data release last Wednesday, while the ringgit weakened 1.26% to RM3.21 yesterday from its highest of RM3.17 to the US dollar for this year.

Fitch Ratings recently affirmed Malaysia’s sovereign ratings at A-, and maintained its negative outlook reflecting the country’s public finance position.

“Public finances are Malaysia’s key sovereign credit weakness and remain a source of downward pressure on the ratings,” it said in a report.

The ratings agency acknowledges the Government’s efforts to reduce the budget deficit to 3.5% of gross domestic product (GDP) this year and 3% in 2015.

However, it notes that the path to achievement of the targets remain unclear. The federal government debt stood at 54.7% of GDP by end-2013, which is slightly below the 55% ceiling set by the Government.

Fitch also warns that the sustained heavy public sector deficits could increase the chances of the current account moving into deficit.

“The current account surplus as a proportion of GDP declined from an average of 13% per year from 2003 to 2012 to 3.7% in 2013,” it says.

It expects the surplus to remain in the low single digit from 2014 to 2016.

Hong Leong Investment Bank expects the trade surplus to remain low moving forward, affected by lower-than-expected crude palm oil (CPO) prices and a potential surge in capital imports as the Rapid (Refinery and Petrochemical Integrated Development) project gathers pace in the second half of this year.

“A decline of RM100 per tonne in the CPO export price will shave RM2.6bil from the annual trade surplus,” it says in a report.

Analysts have lowered their average CPO price forecast in 2014, following an increase in supply of soybean oil.

Kenanga Research analyst Alan Lim cut the average 2014 CPO price estimate to RM2,500 per tonne from RM2,800.

Currently, the CPO price levels are trading at between RM2,250 and RM2,300 per tonne.

Export performance in June had slowed to a single-digit growth of 7.9%, which is almost half of the market consensus of 15% yoy gain, due to weak demand from all major trading destinations especially from Japan and China, as well as weaker exports of electrical and electronic (E&E) products , palm oil and petroleum products.

At the same time, imports for the month were also sluggish after recording only 9.2% growth from an 11.8% gain in May, mainly dragged down by lower imports of intermediate goods.

Intermediate goods make up 59% of total imports. It records only 2.7% yoy growth in June.

Exports in most countries in South-East Asia picked up steam with Malaysia’s main export partner Singapore recording an export growth of 4% yoy in June, while China and Indonesia posted 7.2% yoy and 4.5% yoy growth respectively.

“We conclude that it was the currency that had impacted our export competitiveness in June as the ringgit had gained some ground from April onwards and almost throughout the second quarter of 2014,” says M&A Securities in a report.

It says that the ringgit in April, May and June had averaged at RM3.21, RM3.21 and RM3.19 per US dollar against first quarter 2014 average of RM3.29 and the January peak of RM3.34 per US dollar.

The latest trade statistics also do not paint a rosy picture on the exports of E&E products, which make up 32.7% of Malaysia’s total exports.

In June, E&E products registered a sluggish increase of only 5.5% yoy or RM1.1bil compared with a 12.4% growth in May, despite good global semiconductor sales in June.

“As expected, E&E product exports have struggled to maintain momentum in Malaysia and the region,” CIMB Research Julia Goh says in a recent report.

She adds that the moderation in imports of intermediate goods suggest that there will be further deceleration in Malaysia’s export growth and the high second half of 2013 base will also dampen growth momentum.

“However, the emerging Asia’s July Purchasing Managers Index (PMI) has been encouraging for the region’s manufacturing sector and the rising new orders suggest that there is room for further recovery,” she says.

She maintains her 2014 export growth estimate at 4.2%.



Malaysia’s oil and gas exports remained supportive to the overall export growth with shipments of crude oil increasing by 24.5% yoy and LNG rising 11.2% yoy in June.

Nonetheless, Malaysia’s trade surplus for the first half of 2014 improved significantly compared with than the same period last year.

Total trade expanded 9.9% from the corresponding period in 2013, while the trade surplus improved by 81.8% to RM44.68bil.

“Based on the recent trade data for the first half of the year, we revise our forecasts for exports and imports for 2014 to 12% and 10%, from 5% and 9% respectively,” Manokaran says.

Exports for the first half of 2014 increased 12.5% yoy compared to a 4% decline in the same period last year.

M&A Securities says the ringgit may gain strength, which would dent the export momentum.

“This leads us to predict that the second half export growth will be nowhere as strong as in the first half of 12.5%,” it says in a recent report.

Economists expect Malaysia’s economic growth to remain robust at about 5.3% driven by strong export performance in the first half.