RHB Research expects slowdown in trade performance in 2H22

by S BIRRUNTHA / graphic by TMR

RHB Investment Bank Bhd (RHB Research) is maintaining a cautious view on the risks of a global economic slowdown impacting Malaysia’s trade performance in the second half of the year (2H22).

The research house noted that some signs of a slowdown in the momentum of exports to the US and China are already evident in the June data.

Looking forward, it believes that Malaysia’s trade performance would stay resilient in the third quarter of 2022 (3Q22), however, in 4Q22 exports could slow down.

“Malaysia’s export performance would likely feel the pinch of slower economic growth in China. The momentum of outbound shipments to China is trending downwards since the beginning of the year amid slower economic activities in China due to continued implementation of strict containment measures.   

“To recap, China’s GDP growth has contracted by 2.6% in 2Q22 (0.4% year-on-year [YoY]) compared to the last quarter.  

“The emergence of a more infectious strain of Covid-19’s Omicron variant as reported in some major China’s cities is likely to lead to higher uncertainties,” it said in a research note today.

RHB Research also said for the month of June, the momentum of exports in both nominal and real terms are picking up amid resilient growth in electrical and electronics (E&E), as well as petroleum products exports.  

It added that the upward momentum is maintained for imports amid a recovery in domestic demand, as well as higher import value amid elevated food and commodity prices coupled with weakening ringgit.  

In terms of destination, the research house said it has observed a slower momentum in outbound shipments to US and China with a slight pickup in shipments to the eurozone region.

In 1H22, total exports and imports recorded double-digit growth with exports and imports expanded by 26.1% and 30.9% respectively.   

“Nevertheless, we opined that the uncertainties in the global landscape might taper the upward momentum of the trade performance.  

“We expect the Malaysia’s exports to register a full-year growth of 21.9% with slower export growth expected in 2H22, affected by bleaker global economic outlook,” it said.

Meanwhile, RHB Research said the impact of tightening monetary conditions following the monetary policy normalisation is likely to feed into the global economy moving into year-end, resulting in slowdown of global economic activities.  

The research house viewed that the anticipated slowdown in global demand, especially in view of rising recession risks in the US and European Union coupled with disappointing growth in China might taper the upward momentum in export growth going forward.

On the outlook for commodity exports, RHB Research said in the first few months of the year, Malaysia’s exports are well supported by elevated commodity prices such as petroleum and palm oil.  

“The commodity demand and price are anticipated to soften towards the year end amid a bleaker global economic outlook.

“Hence, Malaysia’s export earnings might be affected as well,” it noted.

Malaysia’s exports registered a 38.8% YoY growth for the month of June, versus the Bloomberg consensus estimate of 21.2% and the May print of 30.4%.   

Export growth was boosted mainly by continued strength in petroleum products and E&E shipments.

Meanwhile, imports maintained its upward momentum in value, registering a growth of 49.3% YoY versus Bloomberg’s consensus estimate of 32% and May’s 37.3%.

The three main categories of imports by end use registered positive growths namely higher imports of industrial supplies, capital and intermediate goods, as well as consumption goods.