Will severe flooding slow growth in December?

EXPORTS remained robust in November 2021, while accelerating imports of consumer goods and capital goods signaled continued expansion in domestic demand.

But by December 2021, when flash floods hit, momentum had likely slowed due to short-term disruptions in manufacturing and ports.

The floods affected eight states including Selangor, where the Klang Valley industrial hub is located, and Kuala Lumpur.

Floods, which are generally concentrated in northeastern states like Terengganu, had even affected the economic center of Johor.

Heavy flooding in the Port Klang and Shah Alam areas could impact in terms of supply chain disruptions and would have significantly affected production.

Already, there is an expected decline in trade growth in 2022; Hopefully the disruption caused by the flooding will not damage it too badly.

A rebound in commodity prices and a recovery in global demand, driven by advanced economies, has been a major boost to Malaysia’s trade growth this year (an increase of 24.6% year-on-year over the years. 11 months of 2021), setting a high base for 2022.

“Export growth is expected to moderate from 24.8% yoy in 2021 to 10.2% yoy in 2021, while import growth is expected to be 22.4% lower yoy in 2021-18 , 6% in 2022, “CGS-CIMB Research said.

This is when the favorable commodity winds fade and global economic growth slows.

Flood damage is between RM1 and 1.5 billion, according to estimates from various parties, including the Department of Public Works.

This represents around 0.1% of gross domestic product (GDP).

“As economic output will be affected, especially for factories that have been affected, reconstruction efforts will offset the decline in GDP,” said Lee Heng Guie, executive director of the Center for Socioeconomic Research.

There is no doubt that the disruption dealt a severe blow as truck fleets and roads were damaged, but there was reportedly a compensating increase in production of Chinese New Year (CNY) products in December.

On a month-to-month basis (December vs.November 2021) there may not seem to be too much of a drop, but there will likely be an impact of a benchmark year-over-year, said the former Inter-Pacific. Head of research titles Pong Teng Siew.

In terms of logistics, a big problem is that many CNY goods that were imported and ready for delivery were stored in warehouses when the floods hit.

“All the goods in our warehouse are totally damaged, we still have containers for which the liners charge demurrage and detentions, in the port yard waiting to be picked up,” said Vincent Low, director of Big Tree Logistics Sdn Bhd. “Our operations are greatly impacted. “

Due to the flooding, Big Tree Logistics’ warehouse could not receive any containers, so CNY goods had been stuck in the port yard for some time.

Big Tree Logistics had around 100 containers in the harbor yard, which are charged for detention and demurrage by each liner.

The company is forced to rent a new warehouse to continue operations and begin collecting containers while damaged goods are still inside the flooded warehouse.

The main export period is before November 2021, to allow time for the products to be ready for Christmas.

As such, the current flood disruptions, while very damaging to lives and property, will have less of an effect on world trade.

“The regulatory uncertainty surrounding blue sky days in China, which has closed factories to reduce smog levels, has a bigger impact on that country’s exports,” said Chris Eng, chief strategy officer. Etiqa Insurance & Takaful Bhd.

Based on anecdotal evidence, this had resulted in longer delivery times for products from China, both semi-finished and finished products.

In terms of semi-finished tools and manufacturing, this in turn has a ripple effect on the productivity of Malaysian businesses, which is compounded by other effects of a limited supply chain.

“As such, we see the economy (even if Omicron does not lead to further bottlenecks) remain somewhat limited until April 2022,” added the engineer.

The effect of flooding is difficult to quantify but depends a lot on the duration of the situation and the speed with which relief can be deployed.

This is the time of year when economic activities tend to slow down seasonally, hence the comparative impact could be a bit more attenuated, said OCBC Bank economist (M) Bhd Wellian Wiranto.

OCBC Bank (M) ‘s GDP forecast for 2022 of 5.0% is unlikely to be clouded due to the flooding, especially if there is hope that the situation can be brought under control in the coming weeks. .

While there may be some impact on factories in flooded areas, most companies have factories and factories elsewhere.

“Overall I don’t foresee a major impact on growth, if any this could be in the short term,” said Danny Wong, CEO of Areca Capital Sdn Bhd.

The impact of severe flooding might be minimal, at this stage, on overall economic growth, but on an individual basis, has caused untold suffering and the spillover effects can also have economic damage.

Yap Leng Kuen is a former StarBiz editor. The opinions expressed here are those of the author.

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