Malaysia’s export growth expected to fall sharply to 1.5% this year

UOB Global Economics and Markets Research expects Malaysia export growth to dip significantly to 1.5% this year from a double-digit growth of 25% in 2022.

It said that exports will continue its moderating growth momentum, mainly taking into considerations the statistical base effects following two consecutive years of robust gain in 2021-2022, softening global demand, ongoing global tech down cycle, exporters’ capacity in meeting environmental, social and governance (ESG) market demand and expectations for lower export earnings in light of stabilising commodity prices.

It also pointed out that leading indicators, namely manufacturing Purchasing Managers’ Index (PMI) and imports of intermediate goods, also presage a further slowdown in the country’s exports.

Malaysia’s manufacturing PMI has fallen into contraction territory since September 2022 and hit a 16-month low of 47.8 points in Dec 2022 from 47.9 points in November. This came as a result of subdued demand, leading companies to trim input buying, downwardly adjust inventory levels and lower selling prices for the first time since May 2020 amid easing cost and supply pressures, the research house said. 

The second month of single-digit growth in Malaysia’s imports of intermediate goods in December after 20 months of double-digit gains further verifies lower input purchases by Malaysian firms despite lower input costs.

However, it noted that potential spillover effects from China’s reopening and greater access to global markets following Malaysia’s ratification of two multilateral trade agreements last year are seen as key contributors to Malaysia’s export growth outlook this year. 

The Malaysian government has ratified the Regional Comprehensive Economic Partnership (RCEP) Agreement on March 18, 2022, and the Comprehensive and Progressive Agreement for TransPacific Partnership (CPTPP) on Nov 29, 2022. It has also signed a memorandum of cooperation (MoC) with the US on May 11, 2022, to expand semiconductor supply chain resilience between the two nations.

In addition to that, the European Union (EU) had announced in December 2022 €10 billion (RM46.8 billion) to be mobilised as part of the Global Gateway to accelerate infrastructure investments in Asean countries that will focus on energy, transport, digitalisation, education and promotion of trade and sustainable value chains. 

“All these are key positive catalysts for holding up Malaysia’s export growth prospects in the near term. This is further affirmed by the Ministry of International Trade and Industry’s (MITI) comments in its December trade report that exports to markets under the RCEP Agreement posted double-digit expansion last year,” it said.

Malaysia’s export growth decelerated to 6% in December 2022 from the same period a year before, marking the first single digit and smallest gain since July 2021.

December’s export growth was primarily pulled down by slower shipments of electrical and electronics (E&E) products and commodity-based goods amid easing commodity price earnings. All three export sectors also posted weaker performance.

By geographical areas, declining exports to China, Hong Kong, Taiwan, UK, India and several Asean countries were blamed for the sharp slowdown in overall export growth last month.

Compared to the previous month, exports rebounded by 1.7% after contracting for two straight months (November: -1.5%, October: -8.8%).

For the entire year of 2022, exports maintained a double-digit rise for the second consecutive year at 25% from 26.1% in 2021, in part thanks to higher commodity price earnings.

Similarly, import growth slumped to a 23-month low of 12% year-on-year in December 2022. On a month-on-month basis, it contracted further by 3.5% (November: -4.9%).

For the full year of 2022, imports surged by 31.3% (compared to 23.3% in 2021), the most since 1994, which was largely credited to the effects of higher commodity prices and weaker ringgit during the year.

As import growth decelerated at a faster pace than that of exports, trade surplus widened to RM27.8 billion in December from RM21.8 billion in the preceding month. 

“This brought the cumulative trade surplus to RM67.6 billion in the fourth quarter of 2022 (4Q22) (3Q22: +RM64.5 billion), implying a larger current account surplus of RM16.5 billion for the final quarter of 2022 (3Q22: +RM14.1 billion), in our estimate,” it said.

As a result, the country’s full-year trade surplus amounted to RM255.1 billion in 2022, breaching another fresh record high. It was a 0.6% increase from the RM253.7 billion recorded in 2021. 

“This is expected to translate into a collective current account surplus of RM38 billion in 2022 (2021: +RM58.7 billion),” UOB said. — TMR / pic source:


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