Trade growth to ease next year on reversal of base effects, says CIMB IB Research

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KUALA LUMPUR (Dec 7): CIMB IB Research said Malaysia’s October trade surplus expanded to 19-month high of RM10.6 billion, propelled by export growth of 18.9% year-on-year (y-o-y) and import growth of 20.9% y-o-y.

In an economic update Dec 6, CIMB Research said the broad-based rebound in imports is an indicator of healthy domestic (capital and consumption goods) as well as external demand (intermediate goods).

“We revise our gross export growth forecast to 18.9% in 2017F (versus +15.3% previously), but expect more normalised growth of 9.8% in 2018F,” it said.

CIMB Research said exports increased 21.1% y-o-y in 10M17, as healthy global demand boosted export volumes, while a recovery in commodity prices improved Malaysia’s terms of trade.

The research house said both tailwinds are expected to be more muffled in 2018.

Moreover, the ringgit has appreciated sharply in recent weeks (+4.1% against the US$ and +1.8% in nominal effective exchange rate terms since 1 Nov).

“Further strengthening in the exchange rate would translate into lower converted export revenues.

“Due to the stronger-than-expected data outturn in recent months, we are tweaking our gross export growth forecast to 18.9% in 2017F (versus +15.3% previously and +1.2% in 2016), which would mark the highest annual growth rate since 2004.

“Against this high hurdle, we expect gross export growth to moderate in 2018F to 9.8%,” it said.