Tag: exports

Categories
Economics

[1380] Of targeting for an unchanged Malaysian rate

Do we need a rate cut following the September 18 footstep of the Federal Reserve to properly manage the Malaysian economy from the monetary side of the equation?

The answer is possibly no. While the US is the largest trading partner for Malaysia, the state of the US economy is not the only factors that need to be considered in managing the local economy.

The slowdown of the US economy, partly signaled by the slowdown in demand for electronics as well as the subprime mortgage crisis affect trade between Malaysia and the US adversely. The effect however is being mitigated by large government spending and as mentioned earlier by Bank Negara, robust domestic consumption and investment. While I personally expect a slowdown in the Malaysian economy, I have a feeling that the state of our economy is healthier than the one suggested by those in the broking business. For those following the security industry, suddenly, they have become more pessimistic than me!

Anyway, with a respectable performance so far, there is limited need to cut rate in order to boost the economy. We need not appeal to the short time horizon that any financial indicator proffers.

At the same time, with the rate cut by the Federal Reserve, it might actually spur growth for the Malaysian economy. First of all, it might improve the US economy which in turn encourages trade between the two countries though Malaysian export will be more expensive compared to US goods; US export will be cheaper compared to Malaysian goods. Secondly, with the reduced interest rate differential between that in the US and Malaysia, more funds could actually flow into Malaysia. Both, sooner or later would strengthen the Malaysian ringgit against the US dollar as capital flows into Malaysia from the US.

So, against, less reason to cut the Malaysian rate the next time the Bank Negara Monetary Policy Committee sits in October next month.

On the other side, inflation seems to be well contained. Hovering around 2%, it might give a rate cut a chance but with the upcoming festive season as well as increasing crude oil price, it is not wise to bet for a rate cut.

If I were a voting member within the MPC and the environment stays practically the same, I would vote like how the MPC had voted earlier; do nothing to let the rate stays at 3.50%.

Categories
Economics

[1362] Of another bad news for Malaysian export-driven economy

As Malaysian electrical and electronics export takes a hit from slower US demand, news from the third largest market for Malaysian export might not be welcomed:

TOKYO – Japan’s economy contracted in the April-June quarter, the government said Monday in a revision of its preliminary estimate that it had expended.

The latest data suggest that the world’s second largest economy – which has been recovering in recent years – may be suffering a slowdown in its pace of growth, making it harder for the Bank of Japan to raise interest rates anytime soon. [Japan Says Economy Contracted in 2Q. Associated Press via Forbes. September 10 2007]

Categories
Economics

[1358] Mengenai Bajet 2008

Saya amat membenci perkataan bajet dan lebih mengemari akan perkataan belanjawan. Itu bagaimanapun adalah satu perkara yang remeh dan mungkin hanya mengambarkan keadaan terkini dunia bahasa Melayu. Tiada apa yang perlu digusarkan.

Bacaan pertama belanjawan negara untuk tahun 2008 akan dibentangkan di Dewan Rakyat Jumaat ini. Saya ingin bertanya, apa pendapat anda akan belanjawan kali ini?

Saya pasti ia akan berputar kepada satu paksi: pilihanraya. Oleh itu, investment horizon kerajaan pimpinan Abdullah Ahmad Badawi berkemungkinan akan berjangka pendek bertujuan untuk mempergunakan satu kelemahan kebanyakan manusia: tidak ramai mempunyai kebolehan untuk melihat disebalik bukit, walau serendah mana bukit itu.

Defisit perbelanjaan mungkin akan bertambah melalui perbelanjaan kerajaan dalam usaha untuk mengatasi kelemahan komponen eksport bersih yang disebabkan oleh tahap kecerdasan ekonomi Amerika Syarikat yang menurun serta penambahan nilai ringgit Malaysia berbanding dolar Amerika. Cukai pula mungkin akan dipotong, sekaligus memperkuatkan lagi kemungkinan pertambahan defisit perbelanjaan. Saya rasa, Keynes akan tersenyum seketika, jika ini benar.

Tetapi, kebolehan mendengar mungkin satu kebolehan yang semua individu yang rasional perlu ada. Mari kita berlaku adil dan dengar apa yang Perdana Menteri mahu dilakukan untuk tahun 2008.

Categories
Economics Society

[1335] Of now, moving on to something more important than Negarakuku…

I find it amazing how too many people are preoccupied with Namewee’s Negarakuku, especially but those that want punishment to be brought upon him for whatever he did. The thing is, he did nothing but criticized the state of our society. His action affects nothing but a lot of people’s ego, being too sensitive to criticism. It’s okay to disagree with any criticism but demanding a person to be silence by force because we disagree with him?

So much for a matured society.

Islamists and nationalists, the Cabinet even, are harping on the issue so hard as if there is nothing else that is important, more deserving of their attention. To me, the issue surrounding fiasco surrounding the Port Klang Free Zone, is much more crucial to our society.

And here is something that affects a lot of people but receives too little attention as well. According to last week edition of HSBC Research, quoted by The Edge, total trade for June 2007 is 0.9% lower than a year ago. It is pretty much attributed to a 22% drop in export to the US.

From the Malaysian Department of Statistics:

In June 2007, external trade data posted a surplus of RM8.7 billion as compared with RM8.2 billion in the same month of 2006. A growth of 5.6% or RM458.1 million in the trade surplus was due to a lower decline in exports of 0.4% or RM186.8 million vis-a-vis a higher decline in imports of 1.6% or RM645.0 million. Total imports and exports for the month were valued at RM40.3 billion and RM49.0 billion respectively as against RM41.0 billion (imports) and RM49.2 billion (exports) a year ago. [Malaysian external trade statistics, June 2007. Malaysian Department of Statistics. August 9 2007]

On the surface, several factors could be attributed to the fall in export. One is the fall in demand for electronics in the US, which itself could be attributed to the current slowdown in the US economy. Second is the appreciating MYR against the USD.

I however unable to find a reason for a fall in import. It might be due to slowdown in consumption component of the GDP which could signal an economic slowdown. I have yet to see a data on consumption to strengthen the base of my suspicion.

Regardless, issue of subprime mortgage in the US brought the Fed to do a helicopter drop. Several others central banks went to do the same thing in hope to increase market liquidity. In fact, increasing number of people now believe a rate cut is coming.

A rate cut would signal this: a transfer of focus from inflation to economic slowdown; there are few that prefer to use the word recession instead. The FOMC convened earlier this month and decided to keep the federal fund rate untouched, apparently confused whether the economy was growing or shrinking.

Given how important the US economy is to the Malaysian economy, I expect a dent though government spending via the Ninth Malaysia Plan might take up the slack. Keynesians would love that possibility.

As for the election, well, suffice to say, I think the government of the day has missed the chance to dissolve the Parliament during a time of exuberance. From now onwards, only uncertainty remains.

Categories
Economics

[1186] Of the invisible hand conspires to diversify Malaysian export

The mainstream media is celebrating the strengthening of the Malaysian ringgit against the United States dollar. Through the glory days when a dollar cost roughly only 2.5 Malaysian ringgit is something that many long for, I find the jovial mood caused by stronger ringgit is something awkward. I am in the opinion that the media, through the tight leash put on by the government, is manipulating laypersons’ sentiment. These laypersons unfortunately have little economic education and do not understand what stronger ringgit mean. I have discovered that nationalists with little economic background tend to cite a stronger ringgit as a proof of sunny day. But perhaps, the strong ringgit against the dollar might signal stabler sunny days in the long run.

I have mentioned earlier that stronger ringgit relative to the US dollar would hurt Malaysian export to the US; a large portion of Malaysian export goes to the US. This is on top of the slowing electronics demand in the US. With the USD growing weaker, US citizens would consume more of local product and less of imported goods.

The ringgit is growing stronger compared to the dollar. Analysts are betting the ringgit to hit 3.4 for a dollar in the coming months and yet, still convinced the the ringgit is undervalued almost two years after the ringgit was unpegged from 3.8 to a dollar. Yet, against other currency, the ringgit is remarkably weak.

Malaysia is heavily dependent on the US economy. For this very reason, I expect Malaysia to experience economic slowdown this year, in tandem with the trend — albeit increasingly confusing trend at the moment — in the US. This dependency is caused by us putting our eggs in a basket. If a slowdown is to occur as expected, the important lesson Malaysia needs to learn to diversify.

Indeed, with stronger ringgit against the dollar but weak against almost everything else, the invisible hand is conspiring to push Malaysian export towards diversification. Slower export to the US would be cushion by greater export to elsewhere. New and more baskets are available out there.

Weak currency encourages the local export component to grow while stronger currency encourages the import component. Rationally, given everything else the same, one would expect Malaysian export to start looking into other markets where the ringgit is weak. Some of those places are Australia, India, the United Kingdom and the European Union.

With diversification, we would cushion ourselves from the harsh realities that others face, making globalization a little bit easier to shallow.