Kenanga Research: Balance of payments to narrow further in 2H19 amid weak global trade

Last week, Bank Negara announced the current account (CA) of the BOP in second quarter 2019 (2Q19) registered a smaller surplus of RM14.3 billion. — Picture by Yusof Mat Isa
Last week, Bank Negara announced the current account (CA) of the BOP in second quarter 2019 (2Q19) registered a smaller surplus of RM14.3 billion. — Picture by Yusof Mat Isa

KUALA LUMPUR, Aug 19 — The Balance of payments (BOP) is expected to narrow further in the second half this year, as global trade remained weak, according to Kenanga Research.

It said the strength in the global trade has weakened, underpinned by the prolonged trade dispute between the US and China, the escalating trade war between Japan and South Korea as well as growth moderation in major economies including China, the EU, and the US.

Last week, Bank Negara announced the current account (CA) of the BOP in second quarter 2019 (2Q19) registered a smaller surplus of RM14.3 billion (1Q19: RM16.4 billion) or 3.8 per cent of total gross domestic product (GDP) (1Q19: 4.5 per cent), albeit remaining sizeable.

“The narrowing in CA surplus was attributable to a reduced goods surplus and higher deficit registered in the services account but was offset by higher investment income.

“Overall, 1H19 performance registered a higher CA surplus of 4.2 per cent of GDP (1H18: 2.3 per cent of GDP),” the research house said in a statement.

Meanwhile, direct investment account recorded a net outflow of RM8.2 billion versus a net inflow of RM16.3 billion in the preceding quarter, due to a higher outflow of direct investment abroad (DIA) by Malaysian companies (-RM12.6b; 1Q19: -RM5.5 billion), while Foreign Direct Investment (FDI) received a smaller net inflow of RM4.4 billion (1Q19: +RM21.7 billion).

Going forward, Kenanga Research expects foreign direct investment (FDI) inflow to continue, though moderately, partly due to possible trade diversion should the spike in approved FDI in 1Q19 be materialised in 2H19.

Maybank Investment Bank has revised upwards 2019 current account surplus forecast with 1H 2019 current account surplus of +RM30.6 billion or +4.2 per cent of GDP (1H 2018: +MYR16.4 billion; +2.3 per cent of GDP).

“We revised upwards our 2019 current account surplus forecast to +MYR44.6 billion or +3.0 per cent of GDP from +RM33.3 billion or +2.2 per cent of GDP previously (2018: +RM33.5 billion; +2.3 per cent of GDP)”. — Bernama

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