• The 3Q15 current account surplus narrowed further to RM5.1b or 1.7% of GDP, the lowest in nine quarters or since the “taper tantrum” of 2Q13.
• The goods surplus increased by RM3.8b to RM27.1b after two consecutive quarters of decline. However, the increase was negated by larger deficits on services and primary income.
• Services fell deeper into deficit, by RM1.3b to a negative balance of RM5.9b while primary income fell by RM5.2b to register a deficit of RM10.3b.
• Net capital outflows in portfolio investments increased dramatically to RM24.4b, raising year-to-date net outflows to RM44.0b, the highest since the Global Financial Crisis in 2008.
• On a full-year basis, the current account surplus is expected to narrow to 2.2% of GDP in 2015 from 4.3% of GDP in 2014 on a smaller surplus in the goods and services balance and a larger investment income deficit.

The current account (CA) surplus or the net value of transactions between Malaysia and the rest of the world narrowed to RM5.1b in 3Q15 from RM7.6b in 2Q15.

As a share of economic output, the current account surplus shrank to 1.7% of GDP in 3Q15 from 2.7% of GDP in 2Q15. The 9M15 current account share of GDP averaged 2.7%, in line with our expectations for a smaller current account surplus of 2.2% of GDP this year.

The surplus from trade in goods was a larger RM27.1b in 3Q15 from a net increase of RM3.8b from 2Q15, the first after two consecutive quarters of decline. Currency translation gains boosted export numbers while imports remained weak, resulting in the larger goods surplus. However, the increase in the goods surplus was not able to match larger deficits in the services and primary income balances.  

The services deficit increased by RM1.3b to RM5.9b in 3Q15 as the value of service imports rose faster than that of service exports. But the main contributing factor to the smaller current account surplus was a larger primary income deficit of RM10.3b after investment income into the country plunged to RM7.4b from RM13.7b in 2Q15.

The financial account returned to a deficit of RM31.2b after an unexpected surplus in 2Q15 that was the result of a large one-off inflow of funds classified as other investment. Within the financial account, net capital outflows in portfolio investments increased dramatically to RM24.4b as foreign short-term capital exited Malaysia in tandem with other emerging markets. Year-to-date net portfolio outflows now total RM44.0b, the highest since the Global Financial Crisis in 2008.

Foreign direct investment into Malaysia was reduced to RM4.7b in 3Q15 from RM12.5b in 2Q15. After subtracting investments originating from Malaysia destined for abroad, the balance swings to a smaller net direct investment deficit of RM0.3b in 3Q15 compared to RM3.9b in 2Q15.

Source: Kenanga Research - 16 Nov 2015