The central bank, in its annual report 2016, said the performance of the current account would continue to be influenced by global and domestic developments in the near term
PETALING JAYA: Bank Negara expects the current account (CA) surplus to narrow in the years ahead, with the CA to register a surplus of between 1% and 2% of gross national income (GNI) this year.
The central bank, in its annual report 2016, said the performance of the current account would continue to be influenced by global and domestic developments in the near term.
“Malaysia’s export performance is projected to improve, in line with higher global demand and commodity prices.
“This should also support higher incomes for export-oriented firms and Malaysia’s outward foreign direct investment, particularly those in the commodity-related sectors.
“Investments are expected to continue to be channelled towards productive sectors,” it said.
While large-scale and more complex investment activities would contribute to raising demand for foreign goods and services, it noted that these investments would raise productive capacity and boost efficiency.
“These short-term trade-offs may be necessary to place Malaysia on a solid footing to tap on the opportunities in a fast-changing global environment,” it said.
It said the country’s current account performance could be broadly characterised by two distinct periods over the past 20 years.
It said the first period encompassed the years following the Asian financial crisis (AFC), when the CA surplus rose and peaked at 17.6% of GNI in 2008, supported by a widening trade surplus amid sustained deficits in the services and income accounts.
“During this period, Malaysia’s exports registered robust growth, supported by strong global demand and rising commodity prices. Conversely, import growth was more moderate, on account of subdued investment activity after the AFC,” it said.
The second period was following the global financial crisis of 2008, when the CA surplus began to narrow.
Export growth slowed due to persisting weakness in global demand and a sharp decline in commodity prices. Demand for imported goods, however, improved, supported by stronger domestic demand.
The current account surplus then settled at 2.1% of GNI in 2016.
Bank Negara noted that Malaysia’s current account movement has been influenced by three major global and domestic developments in recent years.
First, it said, was the prolonged period of slow growth in the global economy and the uneven growth momentum across the advanced and emerging market economies.
More recently, advanced economies have begun to recover gradually, while growth in the emerging market economies has moderated.
“Second, global commodity prices have declined sharply, with a low prospect for prices to return to their previous levels.
“Third, investment in the Malaysian economy, particularly by the private sector, has continued to expand,” it said.
These factors point to the five key developments in Malaysia’s current account balance since 2008 – a declining goods surplus, lower travel surplus, higher payments to foreign service providers, sustained large income deficit (foreign direct investment-direct investment abroad) and the surge in foreign worker remittances.
The last microeconomics concept is the consumer surplus, producer surplus and deadweight loss. Consumer surplus happens whenever a price paid by consumers is less than the price that a consumers willing to pay. (Economics online, 2015) It is calculated by multiplying every unit of quantity with its price, the total will be the consumer surplus. In the same way, producer surplus happens when price received from the market is more than the minimum price they are willing to receive in order to continue supplying. (Economics online, 2015) The minimum price they are willing to receive is actually their cost, a producer will at least need a minimum price that is able cover their production cost. Similarly, it is calculated by multiplying every unit of quantity with its price, the total obtained will be the producer surplus. Summing these two figure up will get a total surplus.
Coming to this part, deadweight loss has to be mentioned. Deadweight loss is a cost to society including consumers and producers caused by market inefficiency. (Investopedia, 2015) In other words, this specific cost refers to a virtual burden that is to be borne by the consumers and the producers. It will not directly affect us but it will decrease the benefit we could have gained. The economists are always trying to maximise the total surplus in order to reach market efficiency so that deadweight loss can be minimised in the market. As a result, if the market does not maximise its total surplus, deadweight loss appears. Normally, market efficiency is unachievable.
Conclusion
Using the three microeconomics concepts I have explained, it is clearer to understand the reason for this effect. Elasticity, market equilibrium, consumer surplus, producer surplus and deadweight loss, these are the most common things that an individual will most probably need to know. After understanding this, we will be able to explain others.
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