Although the gloomy feeling continues to haunt Malaysia’s economy, with export numbers expected to show further decline in the months ahead, the country is unlikely to slide into a trade deficit.
The reason for this is the weakness in Malaysia’s export numbers will likely be accompanied by a continued weakness in imports as domestic consumption trims down, hence offsetting the effects of declining exports on its trade balance.
According to the Statistics Department, Malaysia’s trade surplus for November 2008 stood at RM11.49bil, up from RM9.6bil in the previous month. It marks the 133rd consecutive month of trade surplus for the country since November 1997.
The trade surplus registered for the month under review will help bolster the country’s overall current account surplus and cushion the effects of higher leakages as a result of foreign pullout of funds and lower foreign investments in Malaysia.
TA Research economist Patricia Oh says Malaysia could still register healthy trade surpluses in the months ahead despite the expected weakness in trade numbers, given the positive co-relational contractions in the exports and imports segment for the country.
She explains that Malaysia’s imports will move in tandem with the declining overall exports, driven down by declining orders for intermediate and capital goods from local manufacturers in view of the weak product market, both domestically and internationally.
Morgan Stanley Research, in its recent report, concurred with Oh’s view that Malaysia’s declining imports would offset the shrinking external demand.
The foreign research house added that it also expected Malaysia’s trade balance to remain in the positive region through 2009.
For November 2008, Malaysia’s total trade value showed a contraction of 6.5% year-on-year (y-o-y) to RM92.08bil. Exports for the month under review totalled RM51.79bil, while imports totalled RM40.29bil, down 4.9% y-o-y and 8.6% y-o-y, respectively.
The electrical and electronic (E&E) products, which represent the biggest component of Malaysia’s exports, are expected to continue driving the country’s external demand downwards over the next few months. This is primarily due to the declining orders placed by key markets such as the US and Europe as they contend with worsening economic conditions back home.
In addition, the dwindling commodity prices could further hamper exports growth going forward as production scales down following the less impressive prices and anticipated slower demand, says Oh.
On the other hand, the launch of the “Buy Malaysian” campaign yesterday by the Domestic Trade and Consumers Affairs Ministry is seen as a tool to reduce local producers’ reliance on export markets, especially in the current global economic turmoil.
The nationwide campaign to encourage consumers to purchase locally-made goods could help some businesses survive this rough patch.
Generally, consumers would turn to locally-produced goods, which are usually priced lower than imported products, during an economic downturn. This is particularly for those who are concerned about their livelihood.
Meanwhile, data churned out by foreign markets continue to dampen the overall consumer sentiment. In the US, for instance, the Institute for Supply Management’s (ISM) factory index tumbled to its lowest level since June 1980 at 32.4 in December 2008, compared with 36.2 in the previous month.
As readings less than 50 signal contraction, the recent data imply that there would be further cutbacks in factory jobs and production in the US over the next few months.
Already, the US’ employment index fell to a pathetically low of 29.9 in December last year from 34.2 a month earlier.
In Japan, the Manufacturing Purchasing Managers’ Index for December 2008 dropped to its lowest level in history to 30.8, down sharply from 36.7 in the previous month. The headline index has been below 50 for 10 consecutive months.