Economy CIMB raises 2013 CA surplus to 4.2% of GDP from 2.7% after BNM data

by **Cals** Mon 18 Nov 2013, 15:51

Economy CIMB raises 2013 CA surplus to 4.2% of GDP from 2.7% after BNM data

Business & Markets 2013

Written by Jeffrey Tan of theedgemalaysia.com

Monday, 18 November 2013 11:58

KUALA LUMPUR (Nov 18): This year’s current account (CA) estimate is now raised to RM40.8 billion from RM26.2 billion, or 4.2% of gross domestic product (GDP) from 2.7%, said CIMB Investment Bank Research today.

In a note today, CIMB IB's chief economist Lee Heng Guie said Malaysia’s CA should remain in surplus, although it is narrowing due to stronger import growth to support domestic demand.

This is especially so given the upturn in the investment cycle amid a moderate recovery in exports, he said.

This CIMB note came after Bank Negara Malaysia (BNM) released the country's better than expected 3Q GDP data last Friday. The Malaysian economy for the third quarter of this year grew 5% year on year, versus the average of 4.7%-4.8% estimated by economists.

“We also revised our CA surpluses estimate to 3.3% of GDP for next year (from 2.5% of GDP previously) and 2% for 2015 (from 0.9% previously),” said Lee.

“This is based on our assumptions for export growth (2.6%-5.0%) for 2014-2015 relative to import growth of 4.5%-5.2%.”

He said the continued surplus in the CA amid large net outflows in the financial account led to Malaysia’s balance of payments (BOP) to remain healthy with a larger surplus of RM11.8 billion (in 3Q), compared to RM1.5 billion in 2Q13.

“A widening BOP surplus and CA surplus (RM9.8 billion versus RM2.6 billion in 2Q13) should help to ease concerns about the possible risk of twin deficits that is together with budget deficit,” said Lee.

“The avoidance of CA deficit should lessen the pressure on the ringgit and sovereign-bond yields.”

He added that errors and omissions recorded large inflows of RM13.4 billion versus outflow of RM6.2 billion in 2Q13. This reflects exchange revaluation gains as a result of the weaker ringgit.

Furthermore, direct investment recorded net inflows of RM2 billion in 3Q versus net outflow of RM7.9 billion in 2Q13, as a result of higher foreign direct investment inflows of RM9.3 billion versus RM7.4 billion in 2Q13.

“This more than offset lower outward investments by Malaysian companies of RM7.3 billion versus RM15.4 billion in 2Q13,” said Lee.