OVERVIEW

? Current account surplus widens further. The 3Q17 current account (CA) surplus continued to widen to RM12.5b (2Q17: RM9.6b), representing 3.7% of GDP (2Q17: 2.9%) buoyed by faster merchandise export growth relative to imports while the services deficit narrowed slightly.

? Financial account records a deficit. The financial account returned to a deficit position of RM1.2b (2Q17: +RM7.3b) due to higher overall net portfolio and other investments outflow, which clipped inflows mainly from direct investments.

? Positive overall balance. With a sharply stronger CA balance despite overall net financial account outflow, and further trimmed by a large errors and omission (-RM8.5b) Malaysia recorded a slightly higher net overall surplus post revaluation changes of RM2.9b further adding to the external reserves.

? CA outlook. On the expectation that 4Q17 CA balance to narrow to RM10.5b (accounting for 2.9% of GDP) as exports moderate, we are projecting the 2017 CA surplus to widen to RM38.0b (2.8% of GDP) from our previous estimate of RM31.1b (2.3% of GDP). For next year, given the expectation of slower external trade growth amid stable domestic demand trend, we project the CA surplus to narrow between 2.0-2.5% of GDP.

Current account widens for second straight quarter. After a tepid start in 1Q17, Malaysia’s current account (CA) surplus widened for the second consecutive quarter to RM12.5b in 3Q17 (2Q17: RM9.6b). This was close to Bloomberg’s median consensus estimate of RM12.9b (ranging from RM10.0b-RM15.0b) and higher than the house conservative RM7.9b surplus estimates. This was the highest current account surplus observed since 2Q14 and amounts to 3.7% of GDP (2Q17: 2.9%).

Higher goods surplus; lower services deficit. The wider CA surplus was primarily due to higher goods and services balance. The merchandise trade balance widened further to RM31.7b from 2Q17’s RM27.0b as export growth easily surpassed that of import growth (both exports and imports expanded during the quarter). Furthermore, the services deficit was marginally slimmer at RM4.9b (2Q17: deficit of RM5.0b), supported by higher tourism-related income (coinciding with higher tourist arrivals and spending, and the 2017 SEA game and ASEAN Para games held in the quarter) as reflected by the travel services surplus. However, these gains were mitigated by lower receipts from the construction service balance mainly attributed to the near completion of projects in India and Qatar.

Primary income and secondary income deficit wider. The primary account deficit widened slightly to RM8.6b (2Q17: deficit of RM8.2b), largely from lower investment income receipt abroad (3Q17: RM11.4b; 2Q17: RM12.4b), outpacing the decline in investment income receipts by foreign investors. The secondary income deficit widening was more prominent at RM5.7b (2Q17: deficit of RM4.2b), largely as a function of higher outward remittances outpacing inward remittances.

Source: Kenanga Research - 20 Nov 2017