Malaysian December trade data show the highest-ever monthly value of exports and imports, heralding an economic turning point that is sure to keep the fire burning under talk of a change to the ringgit peg ($1=MYR3.80), economists say.
The data come at a time when economists had begun to question whether Malaysia’s export performance was falling behind that of the recovery elsewhere in the region, and amid reports that the government wants stronger exports before considering an alteration of the peg.
Malaysia’s December trade surplus amounted to a preliminary 6.1 billion ringgit on record-high monthly values for exports and imports, the Ministry of International Trade and Industry said. Both exports and imports skyrocketed, rising 36% on year to MYR38.8 billion and MYR32.6 billion respectively.
“That is the highest growth we’ve seen in any given month for nine or 10 years,” Paul Schymck, regional economist at IDEAglobal in Singapore says. “It’s definitely a lot stronger than expected.”
Economists anticipated on-year export growth of around 16.7% and import growth of around 11.4% in December, with a surplus of around MYR6.7 billion.
“We know that Malaysian exports had been under performing (the region) and these numbers represent a turning point,” Wong Chee Seng, an economist at DBS Economic Market Research in Singapore says.
“Up until now, Malaysia’s exports seemed to have lagged recovery across the region, and this data indicates that Malaysia is set to expand strongly in the beginning of this year,” Schymck adds.
As that expansion happens, and Malaysian exports are clearly running with - or ahead of - the pack in the region, economists say talk of a revision or removal of the ringgit peg will remain at the forefront.
“As long as the December figures aren’t due to some anomaly, we’re going to get more of the talk we’ve seen over the past few weeks on the peg,” Schymck says.
Economists have said that improved exports are among necessary conditions for Malaysia to consider an adjustment of the peg.
Speculation has mounted recently about a possible alteration of the peg regime as the dollar continues to wilt versus regional currencies. While the government has assured that no change is imminent, Prime Minister Abdullah Ahmad Badawi’s administration has made it clear the country won’t adhere to the peg as a matter of dogma. His remarks were aimed at dissolving perceptions the country would maintain the peg as a matter of pride, in the wake of fierce international criticism after its induction in 1998.
Also, the appointment as Second Finance Minister of Nor Mohamed Yakcop, widely perceived as a founding father of the peg, indicates the government will be poised for action when the time comes. And economists are no longer ruling out a change over the next 12 to 14 months.
“There is a limit to how far you can grow your economy on a weak currency, and the danger is that if you allow it to stay weak permanently you don’t move up the value-chain but rely instead on a weak currency for exports,” Schymck says.
If Malaysia is to achieve its goal of acquiring developed country status by 2020, catching up to the more developed economies in the region, it will need to maintain the steady progression toward technology and skill-related production and services, economists say.
And Malaysia is on the way. For all of 2003, exports breached the $100-billion mark to reach an all-time high of MYR382 billion. Exports of electrical and electronic goods accounted for 51% of the total value of exports, in stark contrast to earlier days when primary industries and agriculture were the prime drivers of growth.
The data suggest Malaysia is still agile enough to stay in the race with regional electronics producers such as Taiwan, South Korea, and Singapore.
The ministry attributed the 1.6% rise in 2003 imports to accelerated industrial production in the country.
Intermediate goods accounted for around 73% of the value of total 2003 imports. Capital goods imports, oft