Published November 4, 2008

KL's Sept export growth may slow further

Economic growth will probably stall in 2009 at 0%: UBS

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(KUALA LUMPUR) Malaysia's September export growth is expected to slow further and lag import growth because of lower commodity prices and falling demand for electronic goods as a result of the global economic downturn.

Price factor: Falling commodity prices, including those of palm oil, are expected to slow Malaysia's annual export growth to 8.2 per cent in September from 10.6 per cent in August for its lowest rate since March

Malaysia's annual export growth is expected to slow to 8.2 per cent in September from 10.6 per cent in August for its lowest rate since March, according to the median of a Reuters poll of 11 economists.

'The main thing here is that we expect exports to continue on its moderating path, with commodity prices and weaker global demand the main forces at work,' said IDEAglobal economist Gundy Cahyadi.

Electronics have accounted for 40 per cent of Malaysian exports so far this year, down from 44 per cent a year earlier.

Last month, electronics export fell 1.3 per cent from a year earlier, reflecting declining demand.

The price of palm oil, which makes up about 10 per cent of Malaysia's exports, has fallen by two- thirds since a peak in March and in August the value of its exports was down 15 per cent from July.

Malaysia is also a crude oil exporter and the global price of oil has dropped to under US$70 a barrel from a peak of more than US$147 a barrel.

Oil exports accounted for 6.6 per cent of exports in January-August.

The median forecast for September's import growth showed imports growth outpacing exports at 8.8 per cent year on year in September, up from 4.2 per cent growth in August.

The trade surplus is seen at RM12.2 billion (S$5.09 billion), down from last month's RM12.65 billion.

'(It) looks like this weakening trend in exports could sustain for the coming months, resulting in a shrinking of trade balance,' said Mr Cahyadi.

He said September import growth would be weak due to both contracting domestic demand and a weak ringgit.

In a separate Reuters poll, analysts saw the ringgit at 3.55 to the dollar at the end of 2008.

The Malaysian currency has weakened about 7 per cent against the US currency this year.

Meanwhile, UBS AG said Malaysia's economic growth will probably stall next year at zero per cent, which would be the worst performance in 11 years, as commodity prices drop and the global financial crisis hurts exports.

The economy may return to positive growth of more than 4 per cent in 2010, Paul Donovan, deputy head of global economics at UBS, told reporters in Kuala Lumpur yesterday.

'We have a very weak global economy next year,' said Mr Donovan.

'The government is obviously going to be offering fiscal support' because without a stimulus 'there will be downside risks to growth', he said.

The government's fiscal stimulus would expand its budget deficit to 'slightly above' 5 per cent of gross domestic product (GDP) in the next couple of years, Mr Donovan said.

Malaysia's current forecast is for a deficit of 3.6 per cent of GDP next year.

Mr Donovan also said that he expects Malaysia's central bank to cut its benchmark interest rate by 0.5 percentage point as early as this month, which would help in 'providing growth stimulus' for the country.

'Given what I have been suggesting about export growth, about the overall economic climate, we believe that monetary policy can play a role in at least preventing growth from weakening any further than would otherwise be the case,' he said. -- Reuters, Bloomberg