Malaysia’s Export Slump Signals Weaker Ringgit Ahead

By David Yong

March 3 (Bloomberg) -- Malaysia’s export slump suggests the nation’s currency will weaken from a three-year low as the world’s biggest economies struggle with the deepening recession, according to the Federation of Malaysian Manufacturers.

The ringgit has weakened 6.9 percent this year after Bank Negara Malaysia last week said a collapse in overseas shipments could tilt the economy into a contraction this year for the first time since the Asian financial crisis in 1998. Malaysia’s exports tumbled 14.9 percent in December as economic growth almost stalled in the final quarter of 2008.

“There’s a credit squeeze in importing countries like the U.S., so demand for merchandize goods is just not there,” Paul Low Seng Kuan, vice president of the federation, said in a phone interview from Kuala Lumpur yesterday. “The ringgit can even go weaker. I don’t want to speculate to what level, but the environment is weak and it doesn’t favor the ringgit.”

The ringgit rose 0.6 percent to 3.7075 against the U.S. dollar as of 2 p.m. in Kuala Lumpur, on speculation the central bought its own currency to stem its slide. The currency reached 3.7350 today, the lowest since February 2006, according to data compiled by Bloomberg.

Low said exporters, who make up most of the federation’s membership, are running down inventories, and cutting back on purchases of raw materials to cope with the downturn. Lowering selling prices isn’t helping as “demand for merchandize goods has continued to get worse,” he said.

Getting Worse

Malaysia’s gross domestic product grew 0.1 percent in the final quarter of last year, the slowest pace since the third quarter of 2001, the central bank said on Feb. 27. The government will revise its GDP forecast of 3.5 percent growth for 2009 on March 10 when Deputy Prime Minister Najib Razak unveils a second fiscal stimulus program.

Malaysia’s trade ministry will report January’s data on March 6. Exports plunged 24.6 percent from a year ago, according to a Bloomberg survey, the most since December 1993. Similar indicators tumbled in January in Singapore and Taiwan, government reports showed last month.

Singapore’s economy shrank 16.4 percent in the same period, while the U.S. contracted 6.2 percent. Singapore, the U.S. and Japan accounted for 38 percent of Malaysia’s 663.5 billion ringgit ($178 billion) of exports in 2008.

“The weakening ringgit is actually good news for exporters,” said Low, who is also the managing director of Malaysian Sheet Glass Sdn., a Kuala Lumpur-based of automotive glass maker controlled by Japan’s Nippon Sheet Glass Co. “They are more concerned about the lack of orders. It’s not an issue of selling price alone. There’s just no demand.”

To contact the reporters on this story: David Yong in Singapore at dyong@bloomberg.net.