Published June 8, 2009

MALAYSIA INSIGHT

The only way to go from here is up

By S JAYASANKARAN
KL CORRESPONDENT

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MALAYSIAN export figures for April were a disappointment for all those optimists looking for slower rates of decline as proof that the recession was bottoming. Exports actually contracted by a larger 26.3 per cent year-on-year - the market consensus had been minus 22.4 per cent - as opposed to minus 15.7 per cent year-on-year in March.

Malaysia's growth in real gross domestic product (GDP) terms contracted by an unexpectedly larger 6.2 per cent. So we are seeing a similar, if not worse, trend here. Indeed, Bank Negara governor Zeti Akhtar Aziz said as much, warning that the second quarter could prove to be as damning as the first.

Should we worry? No, we should look at it, instead, as the proverbial glass being half-full.

A number of features present itself. First, it would seem that the rate of 'recovery' (for want of a better word) in the region is patchy, because less painful export declines in April occurred in Hong Kong, Indonesia and South Korea.

In Malaysia's case, the export fall in April was exacerbated by the fall in exports of liquefied natural gas (LNG), and crude and refined petroleum products. The LNG falloff was worsened by a plant shutdown for maintenance purposes.

What this also tells us is that the recent commodity price gains have yet to translate into less bad commodity exports. The price rally has yet to filter into the data, and that can only be good going forward.

Meanwhile, imports fell 22 per cent year-on-year but rose almost 9 per cent month-on- month - a gain that was largely due to higher imports of intermediate and capital goods. It would appear that corporations are slowing down their rate of inventory reduction and we could see a rebound.

Indeed, we should see a return to slower export declines because the data coming in from the rest of the world indicates a snapback. According to the Semiconductor Industry Association, global chip sales rose to US$16 billion in April - an increase of over 6 per cent month-on-month.

The surge has been attributed to sale improvements in a number of end-users (mobile phones, for example). The personal computer market is also coming back. The current consensus forecast is that unit sales of PCs will decline by about 6 per cent in 2009 compared to earlier forecasts of a 12 per cent decline. Similarly, the current prediction for cellphone sales in 2009 is a 7 per cent decline compared to earlier forecasts of a 15 per cent decline.

In the United States , inventories have fallen drastically, which could signal a pick-up in manufacturing going forward.

And both China and India have posted stronger-than-expected first-quarter growth, both driven by domestic consumption and infrastructure investment.

The performance of both the giant Asian economies bodes well for electrical and electronics exporters in Malaysia. As enormous consumers, they could be the tide that lifts all ships.

Given the global outlook, which seems decidedly better, the export declines going forward will narrow. Ms Zeti of the central bank thinks so, predicting that things will begin turning around in the second half of the year.

Things will get better - if only because they cannot get any worse.