Malaysia’s current account balance dipped to 0.7% of GDP in Q1, compared to 3.6% in Q4 last year. This marks the thinnest current account buffer since Q2 2016 and comes at a time when investors would pay greater attention to the metric, an economist said in a note
Economist Global Treasury – Research & Strategy OCBC Bank, Wellian Wiranto said that while Malaysia’s current account should stay in the surplus territory, the fact that the cushion has gotten thinner could translate to more susceptibility to more volatile capital flows.
To that end, Wiranto said that it is worth noting that part of the reason why the current account surplus has been reduced is the uptick in goods imports to satiate the uptick in domestic needs, even as Malaysia’s hefty exports continue to provide some counterbalancing buffer.
Elsewhere, he said that it is notable as well that the debit portion of the primary income component – which typically comprises items such as dividend repatriation of foreign investors – has been higher than usual at this time of the year.
The Economist said that the robust GDP print is in line with the tightening stance that Bank Negara has just adopted this week, even if it has not shifted our thinking that it may still opt for a pause in the July meeting and only hike again in September in view of its pledge to tighten in a “measured and gradual” way.
On the decision to hike the OPR by 25bps unexpectedly just two days ago, he said that Malaysia’s central bank noted that, as shown by “the latest indicators,” the economy is “on a firmer footing.”
Going forward, he said that even as the strength in the Q1 data is comforting, the potential headwinds posed by a slowdown in the major economies are likely to present tougher times for the Malaysian economy.
As fortunate as it is to enjoy a domestic demand uplift, the export component cannot be ignored, on its own and on account of how it feeds to the overall economy through employment recovery, especially.
Hence, even though our forecast for the full-year GDP growth would naturally go up to account for the upside surprise in Q1, the outturn for the later parts of the year looks less promising than before.
Hence, in net terms, we now see the full-year 2022 growth at 5.7% yoy, a measured uptick from 5.4% before.