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The Effects Of Erratic External Demand On Exports
Malaysia Perspective | 21 November 2012

By: Yang Ming Wan

Since it rose from the ashes of the last financial tsunami, Malaysia’s exports and foreign trade has experienced a series of roller-coaster ups and downs over the past three years, and has emerged from them battered but not beaten. Not even the Euro zone debt crisis and slowdown in the US economy has upset the growth trend of the country’s exports and foreign trade.

However, the situation took a nose-dive during the third quarter of this year, contracting markedly in the first two months of the quarter. According to revised figures from the Bureau of Statistics, exports in July contracted 2.6% and worsened to 4.5% in August. Taken together, exports shrunk by 3.5% over these two months.

Effect Akin To A Financial Tsunami
It has been a long while since Malaysia’s foreign trade has contracted so significantly, the last time being during the financial tsunami in July 2008, when exports hit a record high of about RM 63.5 billion before making a dramatic downturn through the 4th quarter of the same year. When the export figure crossed into negative territory in October 2008, it shrank exactly 3.5% as well.

From the last quarter of 2008 to the last quarter of 2009, Malaysia’s exports were crippled by the financial tsunami for one full year.

Nevertheless, exports rebounded strongly in December 2009 to grow by about 22%. Following this upturn, foreign trade has since maintained growth, albeit with roller-coaster-like fluctuations, until March-April this year, when small cracks began to appear.

For ease of computation, the Bureau of Statistics chose to smoothen over these slight contractions and treat them as flat growth. These tentative dips into negative growth, of course, did not affect the country’s export figures, which continued to dip and surge wildly.

Whole year performance hinging on changes in final quarter
By the third quarter of this year, the wild swings broke free and plunged in July and August. The Bureau of Statistics could no longer dismiss the changes like it did in March and April. The extent of the contraction brought about an impact that is as devastating as the last financial tsunami, causing the following month’s exports to shrink by 3.5%.

The drastic exports downturn over the two consecutive months of July and August, from less than 3% in July to a further drop to 4.5% in August, made it the single largest decline since September 2009, when exports plunged in excess of 24%. If this alarming trend continues, it would mean that external demands will descend into a similar malaise of the last financial tsunami.

Retroactive to the changes since the beginning of the year, the two consecutive months of export atrophy in July and August seems to be linked to the initial sign of mild reversal in March and April. Both reflect a weakening exports trend. Over the past eight months, exports fell for four months, leaving only January, February, May and June showing signs of growth. This means that in total, exports grew by only 1.5% over the first eight months of this year. Whether Malaysia’s exports for the whole year managed to sustain an overall growth now hinges on the changes in the last quarter.

Chinese economy set to bottom out during the last quarter
Apart from the ailing economies in Europe and the United States, the main contributing factor to the country’s poor exports performance in the 3rd quarter is the economic slowdown in China, Malaysia’s largest export market since the financial tsunami. Any changes in Asia’s largest market will affect Malaysia’s export performance.

China’s manufacturing sector has definitely slowed down: its manufacturing purchasing managers index (PMI) in August was only 49.2, slipping 0.9% from July, and obviously showing a downward trend. Over the same period, Malaysia’s exports to China fell by 10.6%, in contrast to the same period last year. The fact that China’s PMI was unable to claw back above the 50 points level has become the main cause of the decline in exports that the nation faced in July and August.

With the third quarter coming to an end and the arrival of the last quarter of the year, this quarterly crossover has brought with it some good news. China’s manufacturing PMI has rebounded from a low in August to 49.8 in September.

Although technically not a success story, exports crept up further to 50.2 in October, which means China has passed the test! As for Malaysia, the country is finally seeing a glimmer of hope in the first month of the last quarter of this year.

With the unpredictable external demands still in a flux, the export performance of Malaysia this year is going to be dictated by how the last quarter unfolds.

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