There are a lot of things to be optimistic about. The recent increased in Malaysian net exports however is not one of them.

The increase is due to fallen imports. That is generally bad and especially so within Malaysian context. So, I will find my blood pressure spikes slightly whenever I read in the news and other writing of a slew of bad things only to read a negating adverb like, ‘however’, ‘nevertheless’, ‘nonetheless’, etc. to introduce the fact that net exports increased due to fallen imports. And it really pains me to see words like ‘fortunately’. There is nothing fortunate about it for heaven’s sake, unless you are a some kind of neo-mercantilists.

Why is it bad?

In the accounting of gross national product, the component imports is subtracted from exports because it is redundant to another component that is consumption. Imported goods, with the exception of intermediary goods which are meant to be reexported, are consumed locally.

For the reexported goods, it would be reflected in the exports component. For the imported and locally consumed goods, it will be reflected in the consumption component.

For the sake of clarity, the simple form of GDP is Gross Domestic Product = (Consumption + Investment + Government Spending + Net Exports), where Net Exports = (Exports – Imports).

Increased net exports due to lower imports, means consumption is suffering. That cannot be good for the economy, with all else being equal.

One Response to “[1996] Of what increased trade surplus due to fallen imports typically means”

  1. on 29 May 2009 at 16:57 hishamh

    I have a different perspective to offer, but fully agree with the point you are making here. Imported consumption goods have actually held up pretty well – about +4.4% in Q4 and -3.9% in Q1.

    But imported consumption goods are just about a tenth of total imports. The bulk of imports (approx. 70%) is intermediate goods i.e. the stuff that’s used for production. So it’s the supply side that’s suffering from deficient demand, and that’s feeding through into consumption from the drop in incomes. It’s a bit more roundabout than your description, but the result is largely the same.

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