Malaysia's trade surplus drop likely to reverse

Malaysia's trade surplus fell to a nine-month low of MYR2.4bnin July, deteriorating from the MYR8.0bn surplus in June. Exports continue to perform well, rising 3.5% y/y in July, largely on strong increases in electronics (12.1% y/y), metal products (37.0% y/y) and machinery & appliances (23.4% y/y). Imports, increased much more sharply, rising 5.9% y/y, with intermediate goods imports leading the jump. Within intermediate imports, the big jump came from a sharp increase in crude oil and refined petroleum products imports, which is unlikely to be sustained. 

Export momentum continues to improve, but the improvement is likely to be short lived, therefore, drop in trade surplusis expected to be short lived. With the higher currency volatility in Asia, external demand conditions may weaken, which should weigh on Malaysian exports in H2. In terms of markets, exports to China remain strong (32.7% y/y), and natural gas exports to Japan also have improved at the margin.

"A smaller current account surplus y/y is expected in 2015, and the amount is likely to remain comfortable, and despite recent capital outflows. Moreover, Malasiya's GDP growth likely at 5.0% in 2015, versus 6.0% in 2014", estimates Barclays.