The Covid-19 pandemic, which has caused major disruptions to the global supply chain, has dragged Malaysia to record a trade deficit of RM3.5 billion in April 2020. The last trade deficit recorded was in October 1997 which amounted to RM151.3 million.

The poor showing of exports (-23.8%y/y) and imports, which decreased by 8.0% to RM68.42 billion, is expected as most countries around the world were under some form of lockdown to contain the spread of Covid-19 and caused major disruptions to manufacturing activities and the movement of goods globally.

Looking ahead, there are signs that exports will improve partly due to the government having allowed more industries to resume operations with some at full operating capacity since 4 May 2020. At the same time, companies in other countries are also ramping up their business operations. This is reflected by the improvement in May’s PMI which acts as an early indication that the economic downturn caused by the Covid-19 pandemic could start to bottom out.

Clearer indications of exports gaining strength are declines in output and order books being less severe in May compared to April. Although demand continued to fall due to the ongoing social distancing restrictions both domestic and abroad in a move to curtail the spread of the virus, it is expected to recover swiftly going forward provided there is no second wave of infections.

• The Covid-19 pandemic, which has caused major disruptions to the global supply chain, has dragged Malaysia to record a trade deficit of RM3.5 billion in April 2020, ending a streak of 269 consecutive months of surplus. The last trade deficit recorded was in October 1997 which amounted to RM151.3 million.

• Exports fell by 23.8% to RM64.92 billion while imports decreased by 8.0% to RM68.42 billion. The poor showing from both exports and imports is expected as most countries around the world were under some form of lockdown to contain the spread of Covid-19. This has caused major disruptions to manufacturing activities and movement of goods globally

• The contraction of manufactured goods, which constituted 85.5% of total exports, was due to lower exports of electrical and electronic products, manufactures of metal, machinery, equipment and parts, petroleum products as well as optical and scientific equipment. However, the strong double-digit exports growth for iron and steel products, transport equipment as well as rubber products by 23.4%y/y to RM55.5 billion cushioned the decline in exports of manufactured goods.

• Meanwhile, the exports of agriculture goods (7.2% share of total exports) shrank by 13.8%y/y to RM4.7 billion. The poor showings was due to lower exports of sawn timber and moulding, while mining exports (7% share) dropped by 31.6% y/y to RM4.56 billion as a result of poor demand for liquefied natural gas (LNG) and crude petroleum.

• Looking ahead, there are signs that exports will improve. This is partly due to the government having allowed more industries to resume operations with some at full operating capacity since 4 May 2020. At the same time, companies in other countries are also ramping up their business operations. Our optimism is being supported by May’s manufacturing Purchasing Managers’ Index (PMI) that jumped to 45.6 from April’s 31.3 although it is still below the 50-point threshold.

• The improvement in May’s PMI is an early indication that the economic downturn caused by the Covid-19 pandemic could start to bottom out, all the more so with declines in output and order books being less severe in May compared to April. Although demand continued to fall due to the ongoing social distancing restrictions both domestic and abroad in a move to curtail the spread of the virus, it is expected to recover swiftly going forward provided there is no second wave of infections

Source: AmInvest Research - 5 Jun 2020