As I foresaw last month, the changing structural composition of Malaysia’s imports means that the long-standing statistical relationship between exports and imports has broken down this year.
With capital goods taking on a greater weight in the import breakdown, the export forecasts generated by imports as an explanatory variable is now consistently higher than realisation (RM millions):
Although such a divergence isn’t uncommon, the potential sea change in the rationale for using imports to forecast exports means that the theoretical underpinnings of the forecast models I’ve been using have probably been kicked away. As I wrote last month, this is the last time I’m using these models – problem is, I haven’t yet had time to figure out a new one.
In any case, the latest data from Matrade shows further signs of a weakening in the external environment (log annual and monthly changes; seasonally adjusted):
While imports are holding up, particularly imports of capital goods, exports are now entering the second month in negative territory. About the only caveat to add here is that this is smack in the middle of Ramadhan, and we might be looking at a seasonal weakness and not a structural one.
I suspect we might see a bit of a bounce-back next month (replacing my quantitative crystal ball with a qualitative one), but I don’t think we’re going to see any strength in export growth any time soon.
August 2012 External Trade report from Matrade