Malaysia Exports Shrink Unexpectedly; Trade Surplus at Decade Low

07 Sep 2012

--Malaysia's exports fell 1.9% on year in July on weak China demand --The trade surplus shrank to its smallest in more than a decade as import growth rose sharply --Data suggest Malaysia is feeling the pressure from weak overseas demand but domestic momentum remains strong (adds analysts' comments in sixth and eighth paragraphs, context in fourth-fifth and seventh paragraphs, trade data details in last three paragraphs) KUALA LUMPUR--Malaysia's exports contracted in July, squeezing the trade surplus to its smallest in more than a decade, in the latest sign that weaker demand in China and Europe is chipping away at the growth prospects of Southeast Asia's trade-reliant economies. Malaysia's trade surplus stood at 3.61 billion ringgit ($1.16 billion) in July, according to figures released Friday by the Ministry of International Trade and Industry. That was the lowest level since April 2002 when it was MYR2.03 billion, and a sharp decline from MYR9.20 billion in June. The narrower trade surplus was driven by a 1.9% drop in exports, much worse than a rise of 3.7% predicted by private-sector economists and compared with a 5.4% increase in June. In addition, imports increased by 9.5% in July, outstripping a 5.1% gain forecast from economists and accelerating from June's 3.6% pace. The latest data underscore the weak demand facing Asian economies, which are dependent on exports to power their economic growth. South Korean exports--considered a bellwether for the region's trade--dropped 6.2% on year in August, the second month of contraction. Indonesia's exports fell 7.27% in July from a year earlier. The soft reading in Malaysian exports indicates it is starting to feel the pinch from weak external conditions, but the robust import growth in July suggests domestic demand is still holding firm, which could help cushion a sharp downturn in external demand. "The strong import growth is the silver lining in July trade print, which suggests construction and transportation sectors are holding up," and that would prevent the central bank from cutting rates immediately, said Rahul Bajoria, a Singapore-based economist at Barclays. Bank Negara Malaysia Thursday held the policy rate steady at 3.0% for the eighth successive time. Analysts expect exports to remain weak through the remaining months of 2012 and that could mean Malaysia posting a trade deficit toward the end of the year or start of next year. Malaysia hasn't posted a monthly trade deficit since the 1997-98 Asian Financial Crisis. Exports have been volatile--contracting for two months through April and then sharply expanding by 6.7% in May--tracking wavering overseas appetite for its key electronics and electrical shipments. Exports of electrical and electronics products, which account for about a third of total exports, declined 4.8% from a year earlier in July to MYR19.63 billion, mainly due to lower demand from China, the ministry said. Overall exports to China fell 13.1% on year to MYR7.03 billion. Import growth was driven by rise in capital goods, which suggest Malaysian companies continued to take deliveries of heavy equipment for construction activity, and growth in consumption goods.