KUALA LUMPUR (Aug 20): Malaysia’s current account, an important economic indicator encompassing trade and investments, is expected to continue registering a surplus this year of RM39.6 billion, albeit 1.74% lower than the RM40.3 billion it recorded in 2017, said economists at MIDF Amanah Investment Bank Bhd.

MIDF's expectation came on the back of strong exports demand, improving market confidences, and optimistic tourism activities.

“Due to positive global demand and modest recovery in commodity prices, we expect Malaysia’s economy to continue expanding in 2018,” MIDF said in a note to clients today.

For the second quarter of 2018 (2Q18), Malaysia’s current account narrowed sharply to a two-year low of RM3.9 billion, from RM15 billion in 2Q17, the smallest surplus registered since 3Q16.

“The fall was mainly driven by further deficit of services account to RM6.2 billion from RM5.8 billion in 1Q18, besides the goods account surplus which declined sharply to RM26.1 billion from RM35.7 billion. The decline in surplus was partly due to modest trade surplus of US$27.2 billion in 2Q18, which is lower than RM33.4 billion in 1Q18. 

"In addition, average imports growth of 8.1% y-o-y in 2Q18 was not significantly different than those of exports (8.4% y-o-y). Nevertheless, Malaysia still positioned as net external creditor built up from a record of current-account surpluses," MIDF noted. 

The weak current account surplus was also contributed by a further deterioration in primary income, which showed its deficit expanding to RM11.2 billion in 2Q18, from RM10.2 billion in 1Q18. “The larger deficit in primary income was due to higher dividend payments to foreign investment. In addition, deficit in compensation of employees was recorded higher at RM1.8 billion compared to RM1.6 billion in 1Q18,” it said. 

“Meanwhile, secondary income deficit maintained at RM4.7 billion in 2Q18,” it added.

At the same time, MIDF said direct and portfolio investments dragged financial account down, which posted a net inflow of RM9.2 billion in 2Q18, a 39.47% lower than RM15.2 billion in the prior quarter.

“The fall was largely due to the higher net outflow of portfolio investment at RM38.3b, the worst performance recorded since the peak of 2008 financial crisis,” it added.

MIDF explained that the huge outflows was caused by foreign net sell-off of the Malaysian debt securities, totalling at RM29.2 billion in 2Q18, as compared with an inflow of RM900 million in the preceding quarter, amid political uncertainties.

In addition, MIDF said foreign direct investments into the country slumped to RM2.8 billion 2Q18, from RM12 billion registered in 1Q18.

“The drop was the worst since 4Q09. The weak performance troubled balance of payment overall performances, owing to sentiment deterioration in the equity market,” it said.