Trade on recovery path but challenges remain – economist

by BERNAMA/ pic by BERNAMA

THE reopening of almost all economic activity since June is a preamble for Malaysia’s trade to recover although its rise may be capped by soft external demand amid advanced economies that are still affected by COVID-19, said an economist.

Trade momentum remained subdued in May amid the gradual return of economic activity as the country progressed toward the Conditional Movement Control Order (MCO) that lasted for the whole month.

Malaysia is currently in the Recovery MCO phase until Aug 31, 2020, which allows the reopening of almost all economic activity.

“This will be a precursor for trade to recover, though only gradually, no thanks to COVID-19 that remains a source of challenge to our major trading partners,” said Public Investment Bank Bhd economist Dr Rosnani Rasul in a research note today.

She said Malaysia will be in the best position to benefit from the global trade recovery driven among others by an attractive ringgit.

The ringgit is currently trading at 4.2820-4.3000 against the greenback.

Malaysia’s May exports dropped by 25.5 per cent year-on-year, a slightly bigger contraction against – 23.8 per cent in April, driven by an almost broad-based decline led by mining by 49.1 per cent year-on-year, which was hurt by a new OPEC+ supply cut arrangement.

This was further compounded by the closure of some ports in the ASEAN region due to respective countries’ measures to curb the spread of COVID-19 and demand for Malaysia’s goods was also hurt by the slow economic activity in advanced economies such as the US, Eurozone and Japan.

The trade surplus, however, rebounded for the month to RM10.4 billion, a 14.7 per cent improvement year-on-year thanks to a larger drop in imports as against exports, a significant turnaround against a brief deficit of RM3.4 billion in April.

Malaysia (May exports: -25.5 per cent) and Vietnam (May exports: -15.5 per cent) are the only two countries in the region that have released May trade numbers, leaving China, Thailand, Singapore and Indonesia with a later-than-usual release.

Rosnani said the ASEAN region may also face trade-related challenges in the second quarter (April-June) no thanks to soft external demand especially from advance economies amid some that remain under some form of closure or isolation due to COVID-19.

“It could also be a snail’s pace recovery for ASEAN trade especially when China has just been hit by a resurgence of new COVID-19 cases (in Beijing and Hubei), putting authorities there on guard and therefore, the decision to re-implement some form of a lockdown.”

The Chinese government has decided to abandon the setting of annual GDP target this year, its first since 2002, signalling the huge uncertainty caused by COVID-19 which remains a global issue.

An uncertain global recovery has also pushed the International Monetary Fund (IMF) to revise downward its 2020 global growth forecast to -4.9 per cent from -3.0 per cent before, one of its sharpest cuts in a span of a few months amid a recovery that could be more gradual than initially expected.

The sharper contraction was driven by slowdowns in advanced economies like the US (-8.0 per cent), the Eurozone (-10.2 per cent) and Japan (-5.8 per cent) though the IMF remains upbeat on 2021 prospects (+5.4 per cent). This is still subject to a high degree of uncertainty however as long as a COVID-19 vaccine is not available.