Friday, November 6, 2009

September Trade: I'm Not Worried - Yet

It's an unfortunate fact that most point forecasts are nowhere close to actual realization, a truism that applies to practically any endeavour not just economics (stocks, weather, sports, you name it). Last month's trade numbers are making me look like a genius though - which means I'm probably due for a run of bad luck!

I've already commented on the impact that Ramadhan would have on trade, especially with nearly a full week of production stops due to Eid il Fitri. It's no surprise then that both exports and imports appear to have regressed (log annual and monthly changes):

But the export number was presaged by the drop in imports in August - the point forecasts for my two models were just RM300 million off the actual (the 95% confidence interval was over RM10-13 billion), which is about as close to perfect as you can get. Since both models are driven by imports as predictors of export performance, no surprise that they caught the potential drop in exports.

Seasonally adjusted month-on-month growth moreover was essentially flat (log monthly changes, seasonally adjusted):

I'm taking this development positively, given the underlying cause. What I'm hoping and expecting for now is that my models underperform the next couple of months - we're coming up to the end-of-year shopping season in developed countries, and there should be a bounce in output and exports in October and November.

I'm discounting the fact that imports were flat in September - capital goods imports accounted for most of the poor showing, while there was a marginal increase in intermediate goods imports. October exports should therefore range closer to the upper bounds of the interval forecasts.

Next month's predictions:

Seasonally Adjusted Model

Point forecast:RM43,133m, Range forecast:RM48,479m-RM37,788m

Seasonal Effect Model

Point forecast:RM46,735m, Range forecast:RM53,251m-RM40,219m

Technical Notes
1. September Trade data from Matrade

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