E&E sector could suffer blow from slowing trade


Malaysia’s electrical and electronics (E&E) sector is likely to suffer from moderating trade momentum amid greater uncertainty and softening global demand.

According to RAM Rating Services Bhd (RAM Ratings), the E&E sector could be hit by the situation, given the industry’s output is heavily dependent on foreign consumption.

“Some 88.8% of total value-added (VA) generated by the sector is exported, making it especially susceptible to weak global demand,” the rating agency said.

It added that while the E&E sector is the most export-oriented, the highest amount of value-added export (VAE) is attributable to oil and gas (O&G) mining activities. “Although 57.5% of this subsector’s generated VA is exported, it constitutes 15.6% of total VAE from all sectors,” stated RAM Ratings. It added that in contrast, the E&E constitutes 14.2% of total VAE, indicating that a demand shock for the O&G sector will deal the biggest blow to overall exports.

The rating house said the exposure of Malaysia’s overall industrial output is also notable as 43.4% of the nation’s generated VA is to meet foreign consumption. “Moreover, a significant proportion of our total VAE goes to the world’s three largest economies — China (20.1%), the US (12.8%) and Japan (8.8%),” it added.

“As such, Malaysia’s exports and, in turn, GDP momentum would be particularly vulnerable if there were to be a synchronised global downturn,” said RAM Ratings head of research Kristina Fong.

Meanwhile, RAM Ratings also expects trade growth to moderate in February, with export expansion decelerating to 1.4% (January: 3.1%), while imports contract 3.3% (January: 1%).

The moderation would result in an overall trade surplus of RM12.1 billion for the month, largely on the back of more subdued industrial activity during the Chinese New Year festivities and compounded by an already short working month. “Slower industrial activity in key regional markets is also expected to continue impinging on trade growth.”