April’s trade numbers reflect ‘dire global outlook’ during the period, coupled with restriction orders, and deficit deemed a one-off due to PFLNG2 project

by ASILA JALIL/ pic by TMR FILE

THE Covid-19 pandemic dragged down Malaysia’s trade performance in April 2020 as the country recorded its first trade deficit of RM3.5 billion after 269 consecutive months of surplus due to higher contraction in exports compared to imports.

Senior Minister and Minister of International Trade and Industry Datuk Seri Mohamed Azmin Ali said the declines in both exports and imports were expected as most countries were under lockdowns to contain the spread of the coronavirus.

He said exports are expected to improve in the coming months as the government gradually eases movement restrictions and also allows more industries to resume operations at full operating capacity starting May 4.

The country’s total trade value dived 16.4% year-on-year (YoY) to RM133.34 billion as the pandemic led to major disruptions to the global supply chain.

OCBC Bank (M) Bhd economist Wellian Wiranto told The Malaysian Reserve (TMR) that the trade numbers for April reflected the “dire global outlook” during the period, coupled with restriction orders that were enforced.

Despite the shrinkage in exports, he said it does not mean Malaysia will record a continuous trade deficit going forward.

“For one, the global outlook has improved, relatively speaking, on the hope that more economies, including key export destinations such as the US, Japan and Europe, are reopening.

“Moreover, it appears that April’s deficit has been caused almost singlehandedly by a large uptick in imports. Indeed, the import of LNG (liquified natural gas) floating structure from South Korea during the period might have been the ‘culprit’, which is unlikely to repeat itself in the near term.”

Malaysia recorded lower trade activities particularly with Singapore, Thailand, India, the US, Japan, Vietnam and Saudi Arabia.

Exports contracted 23.8% YoY to RM64.92 billion, while imports slipped 8% to RM68.42 billion. Trade and exports declined by 9.9% and 19% respectively month-on month (MoM), while imports increased 0.9%. Exports of manufactured goods, which constituted 85.5% of total exports, declined 23.4% YoY to RM55.5 billion due to lower exports of electrical and electronic (E&E) products, manufactures of metal, machinery, equipment and parts, petroleum products, as well as optical and scientific equipment.

However, exports of iron and steel products, transport equipment, as well as rubber products recorded a double-digit growth of 21.5%, 21.8% and 11.7% respectively, despite the decline in manufactured goods.

Major exports that saw a decline were E&E products, which dropped 21.7% and constituted 39.9% of total exports, petroleum products (-23.2%), LNG (+20.5%), chemicals and chemical products (+18.2%), as well as palm oil and palm oil-based agriculture products (+1.5%).

Malaysia’s trade with Asean countries contracted 27.9% YoY to RM30.4 billion, accounting for a 22.8% share of the country’s total trade. Exports fell 24.1% to RM19.38 billion, while imports from Asean decreased 33.6% to RM11.02 billion.

Higher exports were, however, recorded for transport equipment and palm oil-based manufactured products since August 2019.

As for trade with China, total trade decreased marginally by 1.5% YoY to RM26.25 billion, representing 19.7% of Malaysia’s total trade.

Among Malaysia’s major export market, China was the only market that saw a yearly export increase, rebounding 4.2% to RM12.07 billion in April 2020 versus RM11.59 billion a year ago. Expansion in exports was recorded for iron and steel products, other manufactures (solid-state storage devices ), E&E products and crude petroleum.

Imports from China decreased 6% to RM14.18 billion.

Trade with the US decreased 19.6% YoY to RM10.67 billion, which constituted 8% of Malaysia’s total trade. Exports declined 31.1% to RM5.31 billion, dragged down by lower exports of E&E products, as well as optical and scientific equipment. Imports from the US dropped 3.5% to RM5.36 billion.

Higher exports were, however, recorded for commodity-based products — mainly rubber products as well as palm oil and palm oil-based products which collectively contributed RM1.08 billion of Malaysia’s exports to the US — with the fastest growth in 106 months.

Exports of palm oil and palm oil-based agriculture products to the European Union (EU) also expanded 56.3% YoY to RM484.15 million in April, registering double-digit growth for three consecutive months.

Trade with the EU, however, declined 33.3% YoY to RM9.42 billion with exports down 35.7% to RM4.77 billion, while imports from the EU was valued at RM4.65 billion, lower by 30.7%.

MIDF Amanah Investment Bank Bhd economist Mazlina Abdul Rahman said Malaysia’s imports contracted at a far slower pace than exports mainly due to lumpy purchases of transport equipment, particularly floating structures pertaining to Petronas Floating LNG-2 (PFLNG2) project.

“Imports of transport equipment soared 232.7% YoY during the month (March 2020: -44.2% YoY). As we believe this is just a one-time purchase, a continuous trade deficit is unlikely for the upcoming months.

“Nevertheless, both exports and imports performance will remain weak in the upcoming months, albeit at better notes compared to what we’ve seen in April 2020,” she told TMR.

Mazlina said while diversification of export products and destinations could be an advantage to Malaysia, the demands could fluctuate following pandemic uncertainties and the recent escalation of the US-China trade tensions.

The Department of Statistics Malaysia yesterday stated in its April 2020 External Trade Indices report that both export and import unit value index shrank 1.7% and 1.2% respectively on a MoM basis.

The export unit value index shrank 1.7% to 114.1 points, attributed to the decrease in the index of mineral fuels (-10.8%), animal and vegetable oils and fats (-5.2%) and inedible crude materials (-0.2%).

The import unit value index declined to 114.8 points due to the decrease in the index of mineral fuels (-14.0%), animal & vegetable oils and fats (-6.7%) and inedible crude materials (-0.3%).