This article first appeared in Forum, The Edge Malaysia Weekly on July 17, 2017 - July 23, 2017

The Malaysian economy now appears to be well and vibrant. At least, it is regaining some of its vibrancy. There are some positive indicators that the economy is moving up the slope.

The export figures are extremely encouraging. Exports have grown and so have imports. The rate of increase in exports exceeds that of imports, and there is a trade surplus.

The ringgit has performed well in recent times against the US dollar. There is a two-component story to this. One, US President Donald Trump’s remarks that the US dollar was strong may have led to a sharp decline in the greenback. Two, Malaysia’s strong export numbers may have given the ringgit the right push.

Then again, the ringgit has traded lower against most major currencies, including the Singapore dollar, euro and yen. Perhaps the ringgit’s encouraging performance against the US dollar has more to do with events in the US than with a dynamic domestic economy.

To be fair, there is, indeed, some positive writing on the wall.

The government seems to have had some success in managing the 1Malaysia Development Bhd (1MDB) problem, particularly with respect to its debt issues. From a certain perspective, it can be claimed there is progress in correcting 1MDB’s mismanagement in so far as Edra Power Holdings is heading for an initial public offering.

China’s interest in investing in Malaysia is another big shot in the arm for the economy. It spurs confidence regarding the inflow of foreign direct investment. The long-term impact of this move is quite another matter.

Yet another positive indicator is the renewed interest in Malaysian bonds. Portfolio funds are returning to Malaysia.

Further, consumer and business sentiments seem to be inching up. The overall feeling is that the worst is over and the light at the end of the tunnel is in sight. Not that there is unrestrained optimism, but there is a glimmer of hope being registered by households and companies.

On the credit risk side, one can count on the Ministry of Finance’s resolve to keep the fiscal deficit within promised bounds. That should keep the foreign rating agencies happy. Malaysia can, therefore, continue to enjoy its present rating.

The new tourism tax that will be imposed on all hostel and hotel accommodation (rated and non-rated accommodation) applies to foreigners and locals alike. It is an indication that the government’s coffers are not overflowing. It also points to the fact that the government is straining itself to invent more creative ways of raising revenue.

With no credit rating downgrade in sight, there will be no outflow of foreign funds on that account.

On many counts, it does seem that the economy is strengthening or at least moving in that direction. But to firmly insist that all is well would be to overstate the improvement.

One cannot blindly assume that better economic figures will definitely persist beyond 3Q2017. There are several downside risks that are lurking around the corner.

The shaky situation in the Middle East could lead to a downturn in the already low oil prices.

The ringgit has done well relative to the US dollar, but that has not been the case against the euro or Singapore dollar.

The 1MDB story has not seen its conclusion. Some of this scandal has been factored in by the market. More shocking news could come from the US Department of Justice. Should that happen, the confidence of foreign investors will be rattled.

The export side should see a continued growth trend since the global demand for electronics and other manufactured goods are expected to be bright.

The more fundamental issues in the country are not expected to see any change; not that they have been resolved. Youth and graduate unemployment are not about to burst to critical levels.

Neither is there going to be any immediate change to corporate or household indebtedness.

There is no sign of a major attempt to bring about reform on governance.

Nonetheless, there is some relief in the air. It is possible that this will last as long as exports are lively. It is also possible that as long as the elections are within sight, one could expect a positive mood to prevail.

Dr Shankaran Nambiar is a senior research fellow at the Malaysian Institute of Economic Research. He is also author of Malaysia in Troubled Times. The views expressed in this article are his own.

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