Malaysia's current account surplus may fall below 1% of GDP

The market’s imports and exports are expected to remain in the red.

Malaysia’s current account surplus is slated to shrink to 0.6% of GDP in 2020 compared to 2.5% last year, according to a Fitch Solutions report. This is driven by depressed external demand due to COVID-19 pandemic and the resulting shrinkage of trade surplus. However, the report indicated that a weaker ringgit should act as a natural adjusting mechanism and prevent a flip into a current account deficit. They have also reverted to their previous expectations for a rise in direct investment growth given the global recession in 2020.

The current account balance came in at 2.9% of GDP for the year until Q1. Whilst this figure is broadly steady from the average current account surplus of 2.7% of GDP in the preceding five years, Fitch Solutions expects a steady decline over the rest of 2020. The steady performance in Q1 is attributed to the mostly stable global economy during that period, when lockdowns to control the spread of COVID-19 were mostly confined to China. Meanwhile, total exports decreased by 4.7% YoY in Q1, exports to the US and Singapore rising at a brisk pace of 9.5% and 9.7% YoY, respectively, helping to cushion the blow. Over the coming quarters, exports may face a much tougher challenge with China recovering slowly and with the US and Singapore economies tipping towards an overall contraction over the rest of the year.

The slump in Malaysia’s exports has coincided with a sharp slowdown in price growth for its key commodity exports, palm oil and crude oil. The average Brent crude price of oil took a disastrous blow globally, expecting limited recovery in prices due to bloated inventories, even after a revived OPEC+ pact to cut production. Fitch Solutions expects falling imports will ensure that the trade surplus does not flip into a deficit over the course of 2020.

In addition, falling demand for both consumer and capital goods amidst the slowing economy and a weaker exchange rate would serve to further encourage exports and discourage imports, strengthening the case for the trade balance to remain in a slight surplus. Ringgit is expected to average 4.35/USD in 2020, compared to the 4.14/USD in 2019.

Malaysia saw portfolio outflows amounting to 5.1% of GDP in the year ending in Q1, which negated the inflows of 3% of GDP in other investments. Direct investment saw net outflows amounting to 0.3% of GDP in the first quarter.

Join Singapore Business Review community
Since you're here...

...there are many ways you can work with us to advertise your company and connect to your customers. Our team can help you dight and create an advertising campaign, in print and digital, on this website and in print magazine.

We can also organize a real life or digital event for you and find thought leader speakers as well as industry leaders, who could be your potential partners, to join the event. We also run some awards programmes which give you an opportunity to be recognized for your achievements during the year and you can join this as a participant or a sponsor.

Let us help you drive your business forward with a good partnership!

The sector scored 72.7/100 points in customer satisfaction in the Customer Satisfaction Index of Singapore.
The new system, set for implementation in 2022, will provide migrant workers with quality, affordable and accessible healthcare catered to their needs.
Four medical suppliers saw an average 48% increase in stocks as markets reacted to the new variant.
Their pre-departure tests in South Africa on 26 November were negative.
The new skills maps serve as a resource for training providers and financial institutions to design family office-related training.
Its high costs make the country a top choice for companies with higher-valued-added manufacturing.
HongKongLand had the most growth for the day.
It surpassed the Bloomberg consensus estimate of 14.5%.
The agreement aims to grow tourism and economic activities as borders reopen. 
It will also enter a loan agreement worth $210.6m.
The acquisition will be fully funded by cash through internal resources.
These countries are Cambodia, the Maldives, Sri Lanka, Thailand, and Turkey.
The decrease was driven by profit declines in their beer and non-alcoholic businesses.
Sources say the state-owned Chinese firm is in talks with advisers about the potential divestment.