Malaysia's first half trade figures show impressive growth in exports and an increasing surplus. Nonetheless, the second half may prove tougher going, though the government is confident that targets can still be reached.
Malaysia's trade surplus hit $20.31bn in the first half of the year, up 55% from the same period in 2007, the Statistics Department said in a report published on August 11. The surplus registered $3.9 bn in June alone, up 47.7% on the same month last year. The growth has been driven by soaring exports, which equalled $17.48 bn in June - up 18.4% on 2007. Total exports in the first half were worth $98.2 bn, up 15.5% from the first six months of 2008. Malaysia has now enjoyed surpluses for 128 consecutive months since November 1997, when the country was emerging from the midst of the Asian financial crisis.
The report cited "electrical and electronic" (E&E) goods as the primary export sector, accounting for $6.73bn, or 38.5% of all exports in June - up $360m from the same month last year - and $37.6bn in the first half of the year.
Other major export sectors include palm oil (with exports worth $9.97 bn in the first half), crude oil ($6.64 bn), liquefied natural gas (LNG, $5.02 bn), oil products ($4.6 bn) and timber and timber-based products ($3.24 bn).
Meanwhile, imports hit $77.89bn in the first half, representing 8.3% growth on 2007.
The trading year ahead for Malaysia will be defined by the economic performance of its trading partners and the prices of the goods it exports. As of June, some 71% of Malaysia's trade is with 10 key partners: Singapore, the US, Japan, China, Thailand, South Korea, Hong Kong, Taiwan, Indonesia and Germany. Almost all of these countries are currently experiencing somewhat slower growth than has been the case in recent years. The US seems to have avoided recession for the time being, but its economy is undermined by a weakening housing market, while Germany is belatedly feeling the pinch of a slowdown - and may see higher interest rates imposed by the European Central Bank.
The jury is still out on the impact that the global slowdown and credit crunch will have on Malaysia's West Pacific neighbours, but there are reasons for quiet confidence. Growth forecasts are respectable for most countries, generally exceeding 5% - with the exception of Japan, which will continue to grow sluggishly but has a larger economy.
Currencies in South East Asia continue to weaken due to worries about inflation and political instability, which would have increased the relative cost of Malaysia's exports were it not for the ringgit's own slide. The Malay currency hit a 2008 low of 2.3276 against the dollar on August 12, after the arrest of opposition leader Anwar Ibrahim and the government's decision to slash petrol subsidies. Paradoxically, the ringgit's fall may help exporters remain competitive. Nonetheless, analysts surveyed in the international press earlier this month said that they expected a moderate decrease in E&E output due to softening demand.
The falling prices of Malaysia's commodity exports may also be a cause for worry. The cost of crude oil has plunged from $147 a barrel in July to around $120 today, probably due to flight by speculators and an agreement to increase supply from key Oil Producing and Exporting Countries (OPEC) members. This has in turn dragged down the price of palm oil, which had been rising rapidly on the assumption that it could become a key alternative to fossil fuel-based crude in the near future. On August 12, palm oil futures dropped to a 10-month low of $770 a tonne on the Bursa Malaysia derivative exchange - down from around $990 only two months before.
What is more, signs of a slowdown in the global construction market may impact the Malaysian timber sector adversely.
Despite these worries, the authorities remain confident that markets at home and abroad remain robust enough for international commerce to continue to flourish. On July 31, Liew Vui Keong, deputy minister of international trade and industry, said he expected Malaysia's trade to break the 1trn ringgit ($300bn) milestone this year.
There is little Malaysia can do about weakening commodity prices and the slowing global economy, which may crimp export growth somewhat in the second half. Over the medium-to-long term though, trade can only be boosted by the lowering of excise and non-tariff barriers in the Western Pacific and beyond. These currently impede the movement of goods - freer trade. This, in turn, would lower prices to the benefit of consumers and producers alike. Malaysia's Free Trade Agreement (FTA) with the US is work in progress. Its logic could usefully be applied more universally.