Friday, October 5, 2012

August 2012 External Trade

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.

Technical Notes:

August 2012 External Trade report from Matrade


  1. hello. I come accross your blog from google while i am searching some info to do my assignment.
    I would like to ask for your help.
    I am now working on a project on Macroeconomic issue 2012 in Malaysia,may i know which macroeconomic issues 2012 in Malaysia have more point to elaborate or more information to elaborate on? Or any article that is suitable for it? I've search around but i din't get the idea which article should i take and to elaborate on>__<
    Hope that you can reply me.

    Here are my question of my assignment.

    Find an article (one article ONLY) in a recent newspaper or magazine (dated year 2012) that illustrates one macroeconomic issue in Malaysia.

    Read and understand the article, then answer the following questions based on the article:

    1.Briefly, with your own words, summarize the article. Be sure to include the date and source of the article.

    2.It is an example of what kind of Macroeconomic issue? Explain the issue with related theories and graphs in economics.

    3.What are the impacts of that issue to the Malaysian economy? Are there any challenges, advantages or disadvantages, and/or problems arises from that issue to Malaysia? Explain.

    4.By using the analysis in question 3, what are your opinions/recommendations/forecasting/solutions to that kind of challenges/problems? Explain with a support from any related economics theories.

    1. loveksyblue,

      Offhand, I would say try looking at all the reporting on the federal government budget this past two weeks. There's quite a few macro-issues involved there.

      Here's a list of some other issues you might want to look at:

      A. Government debt (1. it's gotten higher, 2. it's part of fiscal policy, 3. Can boost growth but potentially higher taxation in the future; loss of investor confidence)

      B. Introduction of minimum wage (1. New in Malaysia, 2. Sets a economy-wide floor to wages [labour economics], 3. Raises pay for lower income groups, but can potentially cause unemployment)

      C. External trade (1. Malaysia is a trade dependent economy 2. Export growth has been very poor this year [International economics], 3. Low exports means lower growth contribution, impact of slowing demand from Europe and China)

      Hope that helps

  2. En Hishamh,

    I have two queries:
    a) the foreign reserve is national (i.e. Msian Govt asset?
    b) the credibility of data used in government debt, income, etc

    Also could you eleborate what would be Msia govt asset to justify rating A and debt of near 500b

    Thank you
    Zuo De

    1. @Zuo De

      a) Short answer - no
      b) Malaysia conforms to most international standards on data collection and presentation. Unlike say, China, I've very little concerns over the credibility of our data.

      As far as the rating is concerned, I don't see the problem. Assets include all mineral resources and land reserves, though assets are never used to determine fiscal sustainability or ratings due to valuation issues. Nor is the absolute size of debt indicative of its sustainability.

      Rating agencies look at debt to GDP, the ratio of external debt to total debt, and debt service ratios. If you look at the countries on the same rating as Malaysia (e.g. South Africa, Poland) the ratios are broadly comparable, though both Poland and South Africa have bigger economies and as such bigger absolute debt loads.