Malaysia: Another month of solid trade surplus
By Nur Raisah RasidAC
Malaysia’s October trade balance recorded a US$6.3 billion surplus, and in seasonally adjusted terms, narrowed to US$4.9 billion (first chart).
Underlying strength in exports trend persisted last month. Exports fell 3.7%m/m, sa, following two consecutive months of expansion, mainly due to a 5.8%m/m, sa, decline in non-tech exports (second and third charts). In sequential terms, headline exports expanded at a 27.1%3m/3m, saar, pace through October, in line with our expectations for further normalization in line with the easing in COVID-19 related exports disruption (fourth chart). Meanwhile overall imports turned up modestly, up 0.4%m/m, sa, even as investment goods declined 6.8%m/m, sa (fifth chart). As economic activity resumes more broadly, we expect fixed investment to turn up more discernibly, which implies some recovery in related imports. Meanwhile, intermediate goods imports, which feed into tech exports, rose 11.8%m/m, sa, which may imply some near-term pick-up in tech-related exports.
Emergence of Omicron variant could raise near-term uncertainties, maintaining current forecasts at this juncture. As Malaysia continues to move toward endemic equilibrium, the emergence of the Omicron variant could raise near-term uncertainties around the path forward. We have noted that Malaysia’s high vaccination rates may imply a higher tolerance for future outbreaks, and thus maintain our current forecasts at this juncture. We continue to expect monetary policy tightening of 25bp each in 3Q22 and 4Q22 as labor conditions outside the goods-producing sectors catch up alongside the broader resumption in services, in turn guiding core price higher, albeit at a gradual pace. However, we remain watchful over incoming news regarding transmissibility of the variant and relatedly, vaccine efficacy, which may prompt some tightening in restrictions in line with steps taken by a handful of countries.