Publication

ECONOMIC NEWS (JULY - SEPTEMBER 2007)

May Export Growth Beats Expectations
Malaysian exports beat market expectations and surged strongly in May on stronger growth led by the crude petroleum, optical and scientific equipment, and liquefied natural gas (LNG) sectors. Exports expanded 2.7 per cent year-on-year in May, while imports recorded an increase of 3.5 per cent from a year ago, the Ministry of International Trade and Industry (MITI) revealed yesterday. The stronger export growth led to a trade surplus of RM7.89 billion in May, while total trade expanded 3.1 per cent from last year's. Economists polled earlier by Business Times had expected exports to register 0.97 per cent growth year-on-year and imports to grow 3 per cent year-on-year, bringing in an average trade balance of RM7.26 billion.

Citigroup Asia-Pacific economics and market analysis director Dr Chua Hak Bin attributed the improvement in exports largely to the increase in commodities shipment. "Rising demand for commodities, especially palm oil and crude oil, from China and other Asian economies has led to a surge in LNG and white palm oil shipments," he said, adding that exports of machinery and parts as well as manufactured metal, optical and scientific equipment also rose.

Chua cautioned, however, that technology exports had remained soft. Electrical and electronics exports fell 2.1 per cent year-on-year due largely to falling demand from the US. "The manufacturing slowdown appears more protracted in Malaysia than other Asian countries," he said, adding that a disappointing round of industrial production numbers in May may mean a downgrade in the gross domestic production forecast.

Asean, the US, the European Union, Japan, China, Hong Kong and South Korea were the top export markets, accounting for 81.3 per cent of total exports in May. The Asean market absorbed 24.6 per cent of total exports. In the first five months of the year, significant expansion was recorded in markets like China (28.6 per cent increase), the Middle East (20 per cent), India (13.2 per cent) and South Korea (12.7 per cent). MITI said imports by end-use for May showed those of intermediate goods were worth RM29.92 billion, or 71.8 per cent of total imports, followed by capital goods (RM5.85 billion, or 14 per cent of total imports).

(Source: New Straits Times, 5 July 2007)

 

MIER Sees Higher GDP Growth of 5.7%
The Malaysian Institute of Economic Research (MIER) has raised its gross domestic product (GDP) growth forecast for this year to 5.7% from5.6% previously. The marginal increase was partly due to the country's positive business and consumer sentiments and sound economic fundamentals, it said in its quarterly report released yesterday. MIER said although the external sector currently appeared "soft", there were mitigating factors that could potentially "counteract" the negative factors.

It cited the country's relatively low inflation rate, good progress being made in rolling out Ninth Malaysia Plan (9MP) projects, higher investment approvals and recent policy initiatives such as the scrapping of real property gains tax as the factors that would continue to support growth. "As a highly trade-dependent economy, Malaysia's growth prospects critically depend on the trends in the global economy and the electronics cycle. If the US economy deteriorates or the electronics sector remains sluggish, Malaysia's growth could be adversely affected," it said.

MIER said a resilient domestic demand could partially cushion the external weakness, adding that the construction sector would be buoyed by 9MP projects while the commodity sector would benefit from firm prices. It expects the private sector to be the key growth driver this year, with the public sector continuing to play a vital role. On the supply side, all major sectors were projected to register growth this year, with the services and manufacturing sectors being the main drivers.

The institute expects Malaysia's inflation rate to ease to 2.4% this year from 3.6% last year, driven by a stronger ringgit. MIER has also forecast a GDP growth of 5.8% next year, assuming that the US dollar undergoes an orderly correction, oil prices remain stable and domestic demand be "propped up somewhat" prior to the general election. In comparison, the government's GDP growth target for this year is 6%.

Meanwhile, in her speech delivered by Finance Ministry deputy secretary-general Ibrahim Mahaludin Puteh at MIER's national economic briefing yesterday, Deputy Finance Minister Datuk Dr Ng Yen Yen said the Government was confident the economy "will post 6% growth this year, as forecast by Bank Negara." She said the country's pragmatic and timely macroeconomic policies, high level of foreign exchange reserves and a healthy financial sector were expected to see the economy through global risks to its growth prospects.

(Source: The Star, 18 July 2007)

 

RM3.36 vs US Dollar Seen by Year's End
The ringgit is expected to appreciate to 3.36 against the dollar by year-end from RM3.44 currently, according to foreign exchange expert. The local currency is forecast to strengthen further to 3.33 in the first quarter and 3.30 in the second quarter of 2008. "We are bullish with the medium-term prospects of the ringgit given its attractive valuations and Malaysia's huge current account surplus," said Standard Chartered Bank senior FX Strategist, Global Research, Thomas Harr.

The banking group has pegged the 12-month forward rate for ringgit at 3.42. Harr is also bullish on the mid-term outlook for other Asean currencies like the Philippine peso and Singapore dollar but neutral on the Indonesian rupiah. However, the Thai baht and Vietnam dong were expected to remain bearish, he told reporters after a briefing organised by Standard Chartered Bank Malaysia Bhd yesterday.

In the short term, Harr said, the ringgit and other Asean currencies like the dollar, rupiah and peso would be pressured by the fall in global risk appetite, mainly depressed by the US subprime mortgage crisis, which could get worse in the near term. He said Malaysia, Singapore, Hong Kong and Taiwan were currently considered as "vulnerable" markets with open risks, given their high export exposure to the US. "The recent weaker exports by Malaysia and Singapore reflect some slowdown in the US of new orders of personal computers and electronic products," he added. Harr added that both hedge funds and global investors were likely to stay on the sidelines in the short term as "their positions are stretched and vulnerable to risk."

On the global economic outlook, StanChart FX Strategy head Callum Henderson said global economic growth was gradually slowing down after registering the strongest growth over the past four decades. He said although global inflation was still benign, global monetary indicators suggested that there were risks in money supply trend in the G-15 grouping. Henderson said China and Japan were the global liquidity providers while the US remained as important final destination for global demand. On the dollar, he said: "The current weak greenback may experience a temporary rally between the final quarter 2007 and in the first quarter of 2008 if the US Federal Reserve decides to lower interest rates to manage the sub-prime loans issue."

(Source: The Star, 9 August 2007)

 

'6pc Growth Target can be Achieved'
The Government is confident of achieving the six per cent economic growth projected this year, said Second Finance Minister Tan Sri Nor Mohamed Yakcop. He said he continued to remain optimistic on the country's economy despite a potential slowdown in the US and the world economy which could dampen demand for Malaysia's exports. He pointed out that Malaysia's economy has diversified over the years and is now less dependent on exports.

"Today, domestic investment and domestic consumption are equally important factors. And in the context of any slow down in the global environment, we have the flexibility to kick the momentum of growth in the economy. We have the lever. So, yes, we are confident (of achieving the targeted growth)," Nor Mohamed said at the Khazanah National Development Seminar in Kuala Lumpur yesterday. He had pointed out that Malaysia's exports and imports as a percentage of gross domestic product stood at about 200 per cent – higher than other economies, with the exception of Singapore and Hong Kong.

"No other country in the world has such a high percentage...the rest is below 50 per cent." Nor Mohamed said that trade and globalisation were key factors to help further reduce poverty in the country. "We will continue to harness globalisation so we get the best of it but at the same time protect our sovereignty and ensure that everyone, regardless of race, benefits from this," he said.

(Source: New Straits Time, 5 September 2007)

 

Manufacturers Hail Measures but Cautious on Outlook
The Federation of Malaysian Manufacturers (FMM) welcomes a number of new and innovative measures in Budget 2008 but is cautious about the manufacturing sector's outlook. FMM chairman Tan Sri P.K. Yong pointed out that manufactured exports performance should be weaker this year given the intense competition in the global market. The Government, he noted, had forecast manufactured exports to grow only 2.1 per cent this year, a big drop from the 10.1 per cent expansion in 2006.

"There is an urgency to improve manufacturing efficiency, especially in terms of curbing the rising cost of doing business," Yong said at a press conference on Budget 2008 yesterday. He added that a key concern for the sector was the availability of natural gas at stable prices to enhance the players' cost-competitiveness. "The manufacturing sector has to increase investments to produce more innovative and higher-end products in view that emerging and low-cost countries have distinct comparative advantages over Malaysia in the production of the lower-technology and traditional products," Yong said.

FMM vice-president Datuk Paul Low said a big issue for local manufacturers in the next one to two years is to restructure themselves to produce different higher value-added products than their regional counterparts. FMM lauded the further reduction of corporate tax to 25 per cent in 2009 and said that the single-tier system would simplify the distribution of dividends. It feels that a concurrent cut in personal income taxation should have been given to help increase domestic consumption, especially in view of the weaker external sector.

"Currently, the personal income tax rate is higher than the corporate tax i.e at 27 per cent, and the tax bands are too tight. "Tax payers hit the higher and maximum tax bands very fast and this is a disincentive to knowledge workers," Yong said.

(Source: New Straits Times, 8 September 2007)