RAM Ratings: Malaysia’s external trade to contract by 1.8% in July

by NUR HAZIQAH A MALEK/ pic by TMR FILE

MALAYSIA’S exports and imports for the month of July are projected to contract by 1.8% and 1.1% respectively, which leads to a smaller overall trade surplus of RM7.7 billion for the month.

RAM Rating Services Bhd economic analyst Woon Khai Jhek said the continued contraction estimated for July is consistent with subdued global demand amid heightened uncertainties.

“This is not entirely surprising, given ongoing tensions between Japan and South Korea, and escalating US-China tit-for-tat tariffs,” he said in a statement yesterday.

Woon also said the rapid escalation of both rates and tariffs by both the US and China in the past months would likely aggravate the slow global trade movement.

“Tariffs imposed by the US will affect 96.9% of total imports from China, while China’s tariffs will cover 68.1% of total US imports,” he said.

Woon added that Malaysia is almost untouched when the sluggish global demand has significantly slowed the regional export growth momentum.

“Malaysia is seen as among the least affected, having experienced a marginal decline of 0.2% in the first half of 2019 (1H19) vis-a-vis the sharp contraction charted by other economies in the region,” he said.

The impact on Malaysia’s exports has been comparatively small, whereby overall export growth has been lowered by only 0.7 percentage points.

RAM Ratings research head Kristina Fong (picture) said the lack of impact could be attributable to sustained demand for Malaysia’s chemical and mineral fuel exports from China, a supporting factor that is not experienced by other regional economies.

Subsequently, Indonesia and South Korea saw exports dropped 8.6% in 1H19, followed by Hong Kong and Taiwan which registered a downtick 3.6% and 3.4% respectively.

A key driver of the deceleration in these economies had been a significant reduction in exports to China and Hong Kong in 1H19, which is a proxy to the Chinese market.