Country’s exports on gradual rebound

0

KUCHING: A recovery in the global economy, albeit unevenly, will likely trans­late into higher demand for the country’s export.RHB Research Institute Sdn Bhd (RHB Research) expected the country’s nominal exports to bounce back and expand by 8.5 per cent this year, from minus 16.6 per cent last year.

It stated that global manufacturing activities had recovered to positive growth for the last seven consecutive months, albeit at a more moderate pace in February, while services activities strengthened during the month.

Similarly, the Organisation for Economic Co-operation and Development (OECD) composite leading indicator’s 12-month rate of change strengthened to 9.6 per cent in January, the fifth successive month of increase and from plus 8.1 per cent in December and plus 0.6 per cent in November.

On the financial front, exports slowed down to 18.4 per cent year-on-year (y-o-y) in February, from a strong double-digit growth of 37.1 per cent in the month before, due to shorter working days as a result of the Chinese New Year holiday break.

Despite the slowdown, this was the fourth month of increased in five months, pointing to a sustained recovery in global demand, added the research firm.

Slower growth was reflected in a slowdown in the exports of electronic and electrical (E&E) products and non-E&E manufactured goods. These were, however, mitigated by a pick-up in the exports of major commodity products during the month.

Nevertheless, stripping out seasonal factors and measured on a 3-month moving average basis, exports strengthened to 24.3 per cent y-o-y in February, the third consecutive month of increase and from plus 15.5 per cent in January, suggesting that exports were recovering.

Meanwhile, the exports of E&E products weakened to 23.5 per cent y-o-y last month, from plus 55.6 per cent in January. Despite the slower growth, this was the fifth consecutive month of increase, suggesting that global demand for the E&E products were recovering steadily.

RHB Research highlighted that the slowdown was due to weaker growth in the exports of electronic components and parts (largely semiconductor products) as well as office automation and data processing machines (largely computers), which eased to 22.9 per cent and 17.3 per cent y-o-y respectively in February.

The exports of major commodity products, on the other hand, picked up to 21.1 per cent y-o-y in February, from 12.6 per cent in the month before. Generally, this was the second consecutive month of picking up, supported by a surge in the exports of crude petroleum, which grew by 125.7 per cent y-o-y in February, compared with 35.5 per cent in January.

This was, however, offset partially by a slowdown in the exports of palm oil, which moderated to 31.3 per cent y-o-y in February, after rebound to plus 46.5 per cent in January.

Financially, a sharper decline in the exports of liquefied natural gas (LNG), which fell by 31.5 per cent in February compared with minus 18.7 per cent in January, worsened the situation.

In terms of markets, the weaker exports growth was due to slower demand from China, Hong Kong, Asean and European Union, which eased to 38.6 per cent, 15.7 per cent, 26.1 per cent and 25.9 per cent y-o-y respectively in February.

These were made worst by a decline in exports to Japan, which fell by 3.8 per cent y-o-y in the same month, after rising by 17.4 per cent in January.

Looking at its month-on-month (m-o-m) basis, the exports contracted by a larger magnitude of 10.7 per cent in February, compared with minus 4.1 per cent in the month before.

This was reflected in sharper declines in the exports of E&E products, non-E&E manufactured goods and major commodity products.

The exports of E&E products fell by 15.3 per cent m-o-m in February, compared with minus 5.8 per cent in January, on account of sharper drops in the exports of semiconductors and computers.

These were, however mitigated by a smaller decline in the exports of telecommunication equipment.

This was attributed to a sharper decline in the exports of chemical and chemical products, while the exports of optical and scientific equipment slipped into a contraction during the month.

Going forward, the prospects of a sustainable global economic recovery had improved in recent months, despite various challenges that threaten to derail it, added RHB Research.

This was primary on account of a combination of factors, including aggressive policy stimulus around the globe where policymakers were unlikely to roll it back prematurely, significant improvement in financial markets and risk appetite of investors and more importantly, asset prices had reached a favourable inflection point.

As in the research report, investors were no longer fearful of catching a falling knife unlike during the crisis and more substantial weakness in asset prices would be taken as investment opportunities.

As a result, policymakers around the globe had begun to exit their extremely loose policy and emergency lending programmes, but the process remained gradual, suggesting that its impact on economic activities would unlikely be significant.

In the United States (US), a recovery in the economy was gradually trickling down to a better job market, as indicated by employment of temporary workers, which picked up for the last five consecutive months up to February.

Although an improvement in the housing sector has weakened somewhat, it would unlikely pose a major drag to the US economic recovery.

As a whole, the US economy would likely recover to around plus three per cent this year.

Reinforcing the recovery in Malaysia’s exports was a turnaround in demand for E&E products, which account for 45 per cent of Malaysia’s total exports.

Already, worldwide semiconductor sales picked up strongly by 47.1 per cent y-o-y in January, the third consecutive month of increase.

Indeed, the industry experts, Semiconductor Industry Association and Gartner, expected worldwide semiconductor sales to grow by 10.2 per cent and 10.3 per cent respectively this year, a rebound from minus nine per cent last year.

Based on the 2010 general outlook, in tandem with a pick-up in economic activities, imports were expected to rise faster than that of exports.

This would lead to a smaller merchandise trade account surplus this year.

As the same time, RHB Research envisaged that the deficit in the income account to widen during the year, as non-resident controlled companies repatriate higher dividend on the back of improving corporate earnings.

Similarly, repatriations of salaries and wages by foreign workers were likely to drop, in line with the Government’s policy of reducing the employment of foreign workers.

As a result, the research firm expected the current account surplus of the balance of payments to narrow to around RM97.1 billion or 13.7 per cent of gross national income (GNI) this year, from a surplus of RM112.7 billion or 17 per cent of GNI in 2009.

Nevertheless, the current account surplus remained sizeable and would contribute to a build-up in the country’s foreign exchange reserves and fuel domestic liquidity in the financial system.