Research houses: Downside risks to M'sia trade performance in coming months

21 Feb 2023 11:49am
Bank Negara
Bank Negara
KUALA LUMPUR - Despite the sustained performance of selected exports and domestic-oriented industries in 2022, there are still downside risks to the sustainability of Malaysia’s trade performance in the coming months, especially the trend in the output of electrical and electronics (E&E) products.

Public Investment Bank Bhd (PIVB) in a note said this in view of softer overseas demand, coupled with the anticipated decline in worldwide semiconductor sales of -4.1 per cent year-on-year (y-o-y) to US$556.5 billion in 2023 from US$580.1 billion last year.

"We believe the country’s trade performance will trend in tandem this year. Monthly semiconductor sales continued to decline further in the last month of 2022 to -14.7 per cent from -9.2 per cent in November, reflecting a significant downward trend since the second half of 2022 (2H 2022).

"This is due to a confluence of factors that increased macroeconomic uncertainty, reduced consumer spending, and fluctuated semiconductor demand,” it said.

PIVB also believed the balance of risks to Malaysia’s trade performance remains skewed to the downside, due to heightening global uncertainties, arising from increasing survey-based probabilities of recession in advanced economies, increased inflationary pressures and tightening financial conditions, as well as the escalation of geopolitical tensions.

Given that Malaysia's trade exposure to China and Taiwan accounts for around 22 per cent of its total exports, the friction between these two nations might potentially further exacerbate the issue in the future, it said.

However, it believed that the negative spillovers from the weakening global environment will be partially offset by China’s full reopening in 2023, although the near-term pronounced positive impacts may be limited whereby in the medium-term, trade should prosper if foreign direct investment (FDI) from China keeps pouring into Malaysia’s industrial sector.

Nonetheless, it said that E&E will continue to boost trade, with electric vehicles (EV) and solar-related products serving as the driving force.

Additionally, Malaysia's access to nations with whom it had no prior Free Trade Agreements, such as Canada, Chile and Mexico, is anticipated to improve with the ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), it said.
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"However, with expectations that some local manufacturers may scale back on production in anticipation of slower demand for manufactured goods, as well as subdued global conditions, especially in the early part of 2023, we estimate Malaysia’s real Gross Domestic Product (GDP) to moderate to 3.8 per cent this year from a robust growth of 8.7 per cent in 2022.

"As a result, we anticipate growth in real exports of goods and services to maintain its positive momentum at 3.3 per cent y-o-y in 2023 from 12.8 per cent for 2022 and growth in real imports of goods and services at 4.8 per cent y-o-y in 2023 from 14.2 per cent in 2022,” it said.

Meanwhile, Ambank Research shared that Malaysia’s external trade grew 1.9 per cent y-o-y in January 2023 to RM207.5 billion with exports rising 1.6 per cent y-o-y to RM112.8 billion and imports growing by 2.3 per cent to RM94.7 billion.

However, it pointed out that a higher growth magnitude in imports translates into a narrowing trade surplus to RM18.2 billion from RM28.1 billion in the prior month.

On a month-on-month (m-o-m) basis, exports declined by 14.4 per cent and imports also fell by 8.6 per cent, wherein the tapering momentum in external trades reflects slower economic activity among Malaysia’s trading partners.

Ambank Research highlighted that Malaysia’s external trade posted a robust performance in 2022, with a total trade of RM2.9 trillion, due to the E&E segment and the global demand towards commodity-based exports especially natural gas and palm oil.

"We expect sales of E&E to be slower this year, reflecting the end of the bullish tech cycle and slower demand from external fronts. Malaysia’s manufacturing Purchasing Managers' Index (PMI) is in the contractionary territory since September 2022 and has been on a downward trend since then, reflecting pessimism from the external front.

"Latest PMI number (January 2023) was at the lowest level since the Covid-19 pandemic,” it viewed.

Overall, the research house expected export growth of 5-10 per cent in 2023 as compared to 27.8 per cent in 2022.

It said tapering trade momentum is not unexpected as major economies are now dealing with the effect of policy tightening which saw a steep increase in benchmark interest rates globally.

"We maintain our GDP projection of 4.5 per cent in 2023 as downside risk brought by a slowdown in global trades is expected to be mitigated by relatively robust domestic demand.

"Meanwhile, we view the impact from the earthquake in Turkiye on the Malaysian economy to be minimal, given that Malaysia’s overall trade share to Turkiye’s is only around 0.71 per cent,” it added. - Bernama