By Sherilyn Goh
The slowing of the Chinese economy that is a major source of export demand for Malaysia, is likely to have driven the dampening of Malaysia’s export performance in October, was only partially offset by the lower ringgit, according to Moody’s.
The credit ratings agency said Malaysia’s exports are likely to have narrowed to RM9.5 billion in October, down from RM9.7 billion in September. This was driven by the slip in China’s growth numbers. It said this ahead of the release of October’s trade figures by the Department of Statistics Malaysia scheduled for Dec 4.
Moody’s noted that improved export performance related to the depreciated ringgit is only partially offsetting the impacts of a softened demand from China.
Falling commodity prices, it added, is also likely to have contributed to the shrinking trade surplus. Malaysia which is among the world’s largest global exporters of palm oil, has seen palm prices falling by 20% over the past year. This is happening while weak oil prices continue to exert downward pressure on the value of Malaysia’s crude- and petroleum-based products.
According to Moody’s, the severe agricultural fires that occurred in Indonesia in September will also have spillover effects on Malaysia’s October trade data as pollution across the region may have impeded production and shipping. The ratings agency however noted that these effects are temporary, and are expected to dissipate in coming months.
In September, exports grew 8.8% year-on-year to RM70.16 billion and imports rose 9.6% to RM60.47 billion, giving a surplus of RM9.69 billion. This is down from the surplus of RM10.19 billion in August, according to data from the Department of Statistics.
Rebound unlikely in 2016
Going forward, Moody’s expects Malaysia’s export performance to dampen, as a rebound in Chinese demand is currently out of sight in 2016.
China which is Malaysia’s second largest export market, is suffering a multiple-month manufacturing contraction, raising concerns that the economic giant may cut back on import volumes. The official purchasing managers index (PMI) fell to 49.6 in November, putting at risk its goal of a 7% growth in 2015.
Amid concern over a slowdown in the world’s largest economy, the People’s Bank of China had in earlier this year eased monetary policy in an attempt at increasing liquidity to the corporate sector and boosting growth. A weaker yuan is said to provide further confirmation that exports to China are going to continue falling.
On the other hand, Moody’s said that accommodative monetary policy by Bank Negara Malaysia will support economic growth and import demand. It expects domestic demand to improve on the backdrop of a low interest rate environment. BNM has maintained interest rates at 3.25% for eight consecutive meetings, which Moody’s said is relatively low.
“Malaysian domestic demand is on the mend thanks to the low interest rate environment and should drive improved GDP growth in the next year,” it said.
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