KUCHING: The global economy’s recovery will likely translate into higher demand for the country’s exports and it is expected to rebound and expand by 17.5 per cent this year.
TRADE VIEW: RHB Research expects the current account surplus of the balance of payments to narrow to around RM97.1 billion or 13.7 per cent of GNI this year.
According to RHB Research Institute Sdn Bhd (RHB Research), the global economic recovery was gaining momentum and prospects of a sustainable global economic recovery had improved in recent months.
This was premised on an improvement in investors’ risk appetite, as financial markets had stabilised and asset prices had reached a favourable point where investors were no longer fearful but viewed any weakness in asset prices as investment opportunities.
Furthermore, the sovereign debt problem in Europe was likely to be manageable, as the Euroland countries and the International Monetary Fund (IMF) had agreed to provide a rescue package amounting to US$146 billion for Greece.
Also, policymakers around the globe had gained confidence on sustainable global economic recovery and they began to exit their extremely loose policies and emergency lending programmes, albeit at a gradual pace, added the research firm.
Meanwhile, global manufacturing and services activities had recovered to positive growth for the last eight consecutive months in March. Similarly, the Organisation for Economic Co-operation and Development (OECD) composite leading indicator’s 12-month rate of change strengthened to 10.1 per cent in February.
As a whole, a turnaround for electrical and electronic products , which accounted for about 45 per cent of Malaysia’s total exports last year, would boost the country’s exports. Already, worldwide semiconductor sales picked up for the fifth consecutive month to 58.3 per cent year-on-year (y-o-y) in March, from plus 56.2 per cent in the month before and plus 47.2 per cent in January.
Indeed, the Semiconductor Industry Association, the industry’s experts, expected worldwide semiconductor sales to grow by 10.2 per cent this year, a rebound from minus 0.9 per cent last year.
Nevertheless, in tandem with pick-up in economic activities, RHB Research expected imports to rise at a faster pace than that of exports. This would lead to a smaller merchandise trade account surplus this year.
At the same time, the research firm envisaged the deficit in the income account to widen during the year, as non-resident controlled companies repatriated higher dividend on the back of improving corporate earnings. However, these would likely be mitigated by an improvement in the services account, which was projected to record a larger surplus during the year, in line with a pick-up in travel receipts.
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.
Still, 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.