Published December 5, 2008

Malaysian exports shrink a sharp 14.2% in October

Contributing to the decline were electronic products and commodities

By PAULINE NG
IN KUALA LUMPUR
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THE recession in the developed economies has hit Malaysia. The country's exports fell 14.2 per cent in October, marking the start of a trend that economists expect to continue into 2009.

Mr Ariff: Feels that the government should do more to retrain workers

The sharp month-on-month drop in October exports to RM53.5 billion (S$22.5 billion) was due to lower exports of electrical and electronic (E&E) products and commodities, mainly refined and crude petroleum and palm oil.

Major markets that registered declines were the US, Singapore, China, Hong Kong and Australia - all of which, except for China, are in a recession or hurting badly from the global financial crisis.

Malaysia's imports declined at 7.8 per cent in October to RM43.8 billion, resulting in a monthly trade surplus of about RM9.7 billion, down from RM14.7 billion in September.

Malaysia, which has registered monthly trade surpluses since November 1997, is likely to see these narrow until 2010. And trade deficits cannot be ruled out, said the executive director of Malaysian Institute of Economic Research (MIER), Mohamed Ariff Abdul Kareem.

Global demand for oil has shrunk drastically, with national oil company Petronas revealing this week that it has halted production at its petrochemical plant in Kertih, Terengganu because of lack of demand. MIER's Mr Ariff said that much will depend on the oil price, which hit US$147 a barrel in July but is now less than US$50 a barrel. Should oil continue to trade below US$60 a barrel, Malaysia's trade surpluses and revenue will shrivel.

One bright spot is the services sector, which made a positive contribution to the economy in October for the first time in years. Amid steep falls in commodity prices and E&E demand, the services sector - primarily tourism - is expected to be the main driver of the economy in the short term.

Malaysia's exports for the 10 months to October hit RM566 billion, an increase of almost 14 per cent year-on-year. Total trade this year has already surpassed RM1 trillion. But with the tide turning quickly - an estimated 12,000 jobs were lost in the third quarter - Mr Ariff said that the government should do more to retrain workers to take some of the burden off the private sector.

He described the government's proposed economic stimulus package of RM7 billion as 'just peanuts', and said that pouring most of it into construction and infrastructure owing to their so-called multiplier effect is questionable as construction workers are overwhelmingly foreigners.