Balance of payment Improving Current Account but Worsening Financial Account in 1Q14

by **Cals** Wed 21 May 2014, 17:16

Balance of payment Improving Current Account but Worsening Financial Account in 1Q14

Business & Markets 2014

Written by Rosnani Rasul of M & A Securities Research

Wednesday, 21 May 2014 14:22

Overall BOP 1Q14 Analysis

KUALA LUMPUR (May 21): Malaysia’s balance of payment (BOP) deficit worsened to RM17.2 billion in 1Q14 from –RM2.6 billion in 4Q13 and against a surplus of RM4.0 billion a year ago.

This worsening condition was chiefly caused by deteriorating financial account performance which registered accelerating capital outflow of RM37.5 billion against the deficit of RM9.7 billion in the last quarter and a surplus of RM1.1 billion a year ago.

This matched the persistent selling pressure as witnessed in the equity market. Persistent selling pressure was also reflected in the performance of Ringgit which dropped to an average of RM3.29 per Dollar in 1Q14 against RM3.20 and RM3.16 in 4Q13 and 1Q13 respectively.

The stronger surplus of current account performance which clocking in at higher surplus of RM19.8 billion in 1Q14 from RM14.8 billion in the previous quarter failed to offset against the onslaught of financial account deficit.

Nonetheless, the rising current account surplus which jumped to 7.7% of GDP from 5.6% apiece in 4Q13 and 1Q13 respectively reflects Malaysia’s improving fundamentals. Thus, Malaysia has comfortably avoided a crisis that could jeopardize the outlook of Ringgit.

Current Account 1Q14 Analysis

Overall, almost all sub-segments in current account showed resilient performance led by wider surplus in goods account (1Q14: RM33.5 billion; 4Q13: RM33.3 billion), lower deficit in services account (1Q14: -RM2.7 billion; 4Q13: -RM4.1 billion), improving performance in primary income (1Q14: -RM6.4 billion; 4Q13: -RM10.0 billion).

Only secondary income showed widening deficit after clocking in at –RM4.5 billion in value against –RM4.3 billion in 4Q13. The surplus in trade of goods was supported mainly by lower import which dropped to RM144.9 billion from RM148.3 billion (-2.2% q-o-q) last quarter against exports which eased to RM178.4 billion from RM181.7 billion (-1.8% q-o-q) recorded in 4Q13.

Exports were mainly contributed by electrical & electronic products, liquefied natural gas (LNG) and petroleum products.

The top three exports destinations were Singapore, China and Japan.

Meanwhile, the top three imports sources were China, Singapore and Japan. Resilient 1Q14 performance has pushed the nation’s current account surplus to reach 7.7% of GDP against, the highest seen since the last 5 quarters and the second highest since the last 9 quarters.