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Economy

August trade surplus rises to 9-month high; FX reserves decline

KUALA LUMPUR (NewsRise) -- Malaysia's August trade surplus widened the most in nine months after exports accelerated and imports contracted unexpectedly.

     However, a sluggish global economy led by a slowing China and soft commodity prices will weigh on Malaysia's prospects of sustaining hefty merchandise shipments through the months ahead, analysts warned.

     Trade surplus widened to 10.19 billion ringgit ($2.41 billion) in August from 2.37 billion ringgit a month earlier, according to Ministry of International Trade and Industry's data released Wednesday. Exports grew 4.1% on-year, beating market expectations for a 1.3% gain, while imports contracted 6.1% from a year earlier.

     Exports to China--Malaysia's largest trading partner--surged 32.4% on-year, although the growth pace was a modest 0.6% from July, probably tracking China's recent slowdown. Exports to the U.S. and the European Union grew 12% and 13.5% on-year, respectively.

     "Export momentum remains resilient, but likely to soften going forward," said Barclays economist Rahul Bajoria. "With the higher currency volatility in Asia and weakening demand in China, we expect Malaysia's export performance to remain modest over the rest of 2015."

     August's exports growth marked the third consecutive month of expansion. Shipments of key electronics products, which account for about one-third of total exports, surged 16.7% while palm oil increased 2%, helping to cushion the sharp drop in liquefied natural gas, crude oil and petroleum products.

     Imports meanwhile shrank, dragged lower by 11.4% decline in intermediate goods, which account for more than half of inbound shipments. Consumption goods imports also fell 9.1% and capital goods imports edged 1.6% lower in August.

     Lower oil and gas prices and reduced palm oil output will potentially erode Malaysia's export earnings even as the ringgit's weakness raises appeal of Malaysian shipments, said RHB Research Institute.

     The ringgit, Asia's worst-performing currency, has declined nearly 20% against the U.S. dollar so far this year in-part due to collapse in crude oil prices.

     "For now, our base case assumption is that poor global macro and moderation in domestic consumption would weigh on trade performance in the coming months," said AllianceDBS economist Manokaran Mottain.

     Economic growth in the second half could moderate to around 4.2% from 5.3% in the first six months of the year, bringing this year's expansion to 4.7%, he added. Meanwhile a separate set of data from Malaysia's central bank showed that foreign exchange reserves fell to $93.3 billion as on September 30 from $95.3 billion a fortnight earlier. The reserves are enough to finance 8.6 months of retained imports and are 1.2 times the short-term external debt. Bank Negara Malaysia said that the decline in reserve was primarily due to "quarterly adjustment for foreign exchange revaluation changes."

     Foreign exchange reserves in Southeast Asia's third largest economy have been shrinking at a monthly average of $2 billion over the past few months, amid concerns of a slowing economy and a political tumult that have dragged reserves below $100 billion in July for the first time since 2010.

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