Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid (inset) expects Malaysia’s November exports to contract 1% on softening global demand and lower commodity prices in the fourth quarter, with the slightly lower base in November 2013 contributing to the narrower contraction

06/01/2015 (The Star) - Malaysia’s exports for November is likely to show another contraction, reflecting the drop in crude oil prices, economists said.

To date, the median from a survey of economists showed that they expect a contraction of 0.9% for exports.

This followed a 3.1% year-on-year contraction in October to RM65.1bil, the first such drop in exports since June 2013 as crude oil, natural rubber and crude palm oil prices dropped. The Statistics Department will be releasing its trade data tomorrow and factory output data on Friday.

RHB Research Institute Sdn Bhd economist Peck Boon Soon does not see a significant slowdown in exports for Malaysia, as lower oil prices would translate to higher demand in oil-importing countries in the months ahead.

However, he does expect oil price movements to continue to play an important role in Malaysia’s growth outlook.

“We’re still monitoring oil prices to see where they go. For now, we’ve shaved off 0.3 percentage points from this year’s growth outlook to 5% due to lower oil prices,” he told StarBiz.

From a high of US$101.18 (RM358) last year, US crude oil benchmark West Texas Intermediate or WTI had fallen 47.35% to US$53.27 per barrel on Dec 31, 2014, while the global benchmark Brent had dropped 48.62% to US$57.33 on Dec 31 from a high of US$111.59 last year.

Should oil prices hold at current levels, Peck said there would certainly be an impact on Government expenditure (Budget 2015 had assumed a crude oil price average of around US$100 to US$105) as well as oil and gas investments.

Furthermore, falling exports have also impacted the trade surplus, which declined to RM1.2bil in October, with a possibility of the surplus turning into a deficit should oil prices remain low.

On the exports front, Peck said the outlook for the first-half of the year remains choppy, given the weak global recovery, with any improvement in global demand likely coming through only in the second-half of the year.

Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid expects Malaysia’s November exports to contract 1% on softening global demand and lower commodity prices in the fourth quarter, with the slightly lower base in November 2013 contributing to the narrower contraction.

However, he said in an email that while the Malaysian economy should benefit from the sharp rise in US third-quarter growth, the impact remains unclear.

“Under the current circumstances, it is very hard to come up with concrete estimates since there are many moving parts in the equation. But from a historical standpoint, Malaysia’s economic growth has been closely associated with US growth at about 80% since the Asian Financial Crisis in 1997/1998,” Mohd Afzanizam said.

As for factory output, he said the moderating trend from mid-2014 in the industrial production index (IPI) suggests that businesses have become cautious in view of the softening global economic outlook.

“Hence, we foresee the IPI growth settling at around 4.8% during November, pending the actual result of November’s export numbers,” Mohd Afzanizam said.

The IPI was up 5% in October, while economists expect factory output to moderate to 4% in November. Meanwhile, Oversea-Chinese Banking Corp Ltd economist Wellian Wiranto said in an email that US growth would be a double-edged sword for Malaysia, as stronger growth could mean a hike in US benchmark interest rates sooner than expected.