Thursday, August 7, 2014

June 2014 External Trade

The base effect is starting to wear off (log annual and monthly changes; seasonally adjusted):


Much of the “growth” that has been seen in trade over the past half a year has been due to the really poor trade performance we saw in early 2013. That artificially boosts growth numbers this year. For a clearer view, take a look at the actual levels (RM ‘000):


Unlike imports, which are clearly trending up, exports has instead shifted up from a steady RM55-RM60 billion a month, to about RM61-RM66 billion a month.

Having said that, some of the decline in growth in June has come from lower prices, rather than lower volumes (Index numbers; 2005=100):


Note that export volume is barely above that of 2005; in fact the latest index reading is right back to 100. Instead, it’s been prices that have been a major factor in driving long term export growth. That’s changed a little lately – this year’s export growth is both volume and unit value driven.

Going forward though, I’d expect to see export “growth” rates continue to fall off, as will GDP “growth”, back to long term trends. Malaysia’s economic outperformance this year is really built on the back of really poor performance last year, not a sustained increase in potential growth.

Technical Notes:

  1. June 2014 External Trade report from Matrade
  2. June 2014 External Trade Indices from the Department of Statistics (warning: pdf link)


  1. Hishamh,

    Could it be that Malaysia has reached a plateau in what it can export due to capacity constraint - ie one can only grow so much palm, rubber, factories (no big available land)?

    Zuo De

    1. Evening all,

      @Zuo De,

      The constraint isn't land, it's skilled labour.


      1. What makes you think the government is "deferring" economic restructuring? MITI for instance have been turning down investment applications for low wage manufacturing for nearly a decade now.

      2. How about 3 years ago?

      3. By that time growth slows to that pace, we'll already have reached developed nation status.

  2. Some economists have commented that Malaysia may experience twin deficits - fiscal and trade.

    If this happens, a credit rating downgrade could be triggered.

    This would have a knock-on effect if BNM is forced to increase the OPR in order to defend the Ringgit.

    Not a very pleasant scenario to contemplate.

    The key questions are the following:

    - how long is the government going to defer economic restructuring?

    - when will the economy be weaned away from a dependence on commodity exports and low value-added manufacturing?

    - if the economy is going to "plateau" and go into the 3-4 per cent growth rate, how will developed nation status be achieved?