Monday, July 6, 2009

Trade in May: It's A Bumpy Ride At The Bottom

According to an economists' poll conducted by Bloomberg, May trade data was worse than expected. I'm left wondering how many of these guys actually run models, even ridiculously simple ones like I've used in this blog.

My two models rather neatly bracketed the actual results for May which came in as RM42946 for exports (-35.2% yoy log difference), with the forecast for the model based on seasonally adjusted data at RM42237, and the seasonal effect model forecasting RM43255. I'll have to agree however, that the results aren't that encouraging:

Log annual changes

Log monthly changes

Trade levels, seasonally adjusted

More or less what I expected - a bumpy ride on the bottom. While I won't go back on my April call for a turnaround, the other side of what I think will happen is also pretty clear - we're sitting on the bottom instead of rising to the surface. In short, any talk of recovery is still premature: I'm still thinking in terms of the past few months being more of an inventory adjustment than a sustainable uptick in economic activity. I'd say the odds are against a further worsening in conditions, but that doesn't necessarily equate to any meaningful closing of the output gap.

If my models' forecasts continue to be right, then trade is going to continue to be bumpy:

Seasonally Adjusted Model

Seasonal Effect Model

June forecasts from the models are as below:

Seasonally Adjusted Model:
Point forecast:RM39529, Range forecast:RM44427-RM34631

Seasonal Effect Model:
Point forecast:RM42499, Range forecast:RM47858-RM37140

Technical Notes:
June trade data from Matrade. Details on how the models were constructed are here.

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