Decoding the trade surplus…it is not all rosy

While 2020 trade surpluses may be trumpeted as ‘sterling’, it disguises the real undercurrent, traps, gloom realities and potholes

MALAYSIA registered a trade surplus of 26.9% or RM184.8 billion last year. In what was seen as a downtrodden year due to Covid-19, Malaysia recorded the largest trade surplus ever in history.

The sterling performance was backed by stronger December figures. The country’s exports rose to RM95.7 billion in December, 10% higher year-on-year and surpassed the analysts’ 6.6% forecast.

Exports in the final month of 2020 were also faster than the 4.3% growth recorded in November 2020. Malaysia’s total trade reached RM1.8 trillion in 2020.

The surplus was helped by the rise in exports to key markets like Singapore, China, the US, India, Hong Kong and the European Union.

Electrical and electronics products, rubber products, and palm oil and palm oil-based agriculture products had fuelled the expansion of the country’s exports.

Financial indicators suggested a better than expected year. The ringgit has strengthened from a low of RM4.49 against the greenback. Specific sectors are booming and it seems the worst is behind us.

But what do the figures really tell us? Is Malaysia really out of the woods? Do the increase in export and the widening surplus reflect a booming economy?

It is not all doom and gloom. Malaysia has been able to brave the Covid-19 pandemic. But before anyone jumps in joy like they just hit the jackpot of a mega lottery draw, the sterling trade surplus may just be like a soft toy win at the neighbourhood funfair.

For one, the total trade value in 2020 of RM1.8 trillion is actually 3.6% lower compared to 2019. It is worth pointing out that total exports in 2020 dropped by 1.4% to RM981 billion compared to 2019, meaning the country exported less in value year-on-year.

At the same time, it is worth to recognise that despite the record-breaking RM184.8 billion or 26.9% trade surplus, imports declined by 6.3% or RM53.2 billion to RM796.2 billion. In actual fact, the huge drop in imports helped widen the country’s surplus.

What fuel the surplus further are the prices of key commodities — palm oil, liquefied natural gas (LNG) and oil prices.

Malaysian palm oil prices jumped from around RM2,500 in May last year to RM3,700 at the end of 2020. This means palm oil prices had risen about 51% between May and December 2020. It also suggests that if the country exports the same metric tonne or less palm oil, revenues would continue to be higher.

The same can be said about LNG and gas. LNG prices had tanked the drop and had been steadily rising, jumping from US$1.50 (RM6.11) in the middle of 2020 to about US$2.70 at the end of the year.

The same can be said about oil prices which had jumped to above US$50 a barrel from US$19.33 in April to start 2021 above US$51. Malaysia, being an exporter of these three key commodities, benefitted from the high prices, subsequently widening the surpluses.

The declining imports are also worrying.

Malaysia’s imports only rebounded to post a growth of 1.6% to RM75 billion in the final month of 2020 after nine months of decline. Total imports for 2020 declined by 6.3% or RM53.2 billion to RM796.2 billion. It means that the country’s total trade tanked by 3.6% to RM1.8 trillion compared to 2019.

Some are often under the impression that the lower import is good as Malaysia does not have to borrow to pay for the deficits and provide a shield to the currency.

It also means when a country imports more, the consumer has the purchasing power and this reflects a richer nation. For now, the lower imports only suggest Malaysians are spending less or getting poorer, which only shows the gloomy tale of wealth has deteriorated.

It will be another challenging year. While the 2020 trade surpluses may be trumpeted as “sterling”, it disguises the real undercurrent, traps, gloom realities and potholes.

There is no simple cure. But you can’t use a plaster to patch a gunshot wound.

And with only 130 million of the world’s over seven billion population have been immunised against the Covid-19 menace, the storm is far from over for Malaysia.

  • Mohamad Azlan Jaafar is the MD and group editor of The Malaysian Reserve.