Background Summary

Slower magnitude of decline in trade – Malaysia's total trade dropped by 2.4% y/y in October 2023, milder than the September’s contraction of 12.6 y/y.

Contraction in the manufacturing and the mining sectors – Shipments of the manufacturing declined by 3.5% y/y, due to lower exports of E&E, petroleum products, and chemical & chemical products. Additionally, shipments of mining products also declined by 21.9% y/y, due to lower exports of LNG, crude petroleum, and tin. Only shipments of agriculture products recorded a positive growth of 3.3% y/y.

Imports declined by 0.4% y/y – Within imports, imports of capital goods and consumption goods, which consume around 19.5% of overall imports grew in the positive territory, growing by 8.6% y/y and 9.9% y/y respectively.

Our Prognosis

Exports recovery may take place by early 2024 – Exports are expected to recover by early 2024 on the assumption that the global tech cycle has bottomed while tapering inflationary pressures along major economies implies that monetary policy tightening among major central banks is at the tail-end.

Slower growth for 2023 – We expect the Malaysia’s economy to grow by 4.0% in 2023, and 4.5% in 2024 following exports contraction envisaged for the full year which is also partly explainable by the high-base effect.

Slower magnitude of decline in trades

Malaysia's total trade declined by 2.4% y/y in October 2023 (September 2023: - 12.6% y/y) to RM239.5 billion (October 2022: RM245.5 billion), with exports declined by 4.4% y/y (Sept 2023: -13.8%) to RM126.2 billion and imports declined by 0.2% y/y (Sept 2023: -11.1% y/y) to RM113.3 billion. The trade surplus narrowed to RM12.9 billion (Sept 2023: RM24.4 billion). On a month-on-month basis, both exports and imports continued to improve, increasing by 1.5% m/m and 13.4% m/m respectively. On a year-to-date basis, exports have now declined by 7.2% on average (2022: 25.5%), and imports declined by 7.0% on average (2022: 31.6%).

Contraction in the manufacturing and the mining sectors

Going by sector, shipments in the manufacturing and the mining sectors declined on a year-on-year basis. Shipments of the manufacturing sector, which consumes 85.3% of overall exports declined by 3.5% y/y, due to lower exports of E&E (-2.3% y/y), petroleum products (-23.7% y/y), and chemical & chemical products (-2.5% y/y), where all these commodities contribute around 64.7% of overall exports. Additionally, shipments of mining products also declined by 21.9% y/y, due to lower exports of LNG (-34.9% y/y), crude petroleum (-22.3%) and tin (-8.3% y/y). Only shipments of agriculture products recorded a positive growth of 3.3% y/y, due to shipments of natural rubber (26.2% y/y) and seafood products (12.7% y/y). From a geographical perspective, shipments to major trading partners including Singapore and China, that contribute 27.8% of overall exports, declined. Nevertheless, shipments to the US, Hong Kong, and South Korea (21.7% of overall exports) recorded a positive growth.

Imports declined at a milder pace

Imports of capital goods and consumption goods, which consume around 19.5% of overall imports, were in positive territory, growing by 8.6% y/y and 9.9% y/y respectively. The positive growth in the consumption goods imports is mostly driven food & beverages and durable consumer goods, which may suggest that domestic spending is still holding up as pace of price increase is slower this year. However, imported intermediate goods declined by 7.9% y/y.

Our take

Exports are expected to recover in 2024 as the global tech cycle has bottomed out. The Nasdaq PHLX Semiconductor index which correlates with exports growth suggests that the semiconductor industry hit its low point at the end of the 1H2023 and has since embarked on a recovery path, offering positive signs for 2024. A similar trend is seen in the World Semiconductor Trade Statistics (WSTS) where semiconductor net billings have posted positive growth in September 2023, after declining since mid-2022.

Based on the latest forecast from the 2024 Economic Outlook by the Ministry of Finance, Malaysia’s real export is expected to grow by 5.1% in 2024 after contracting in 2023. On the global trade development, the World Trade Organization (WTO) expects that trade to grow by 3.3% in 2024 (2023 E: 0.8%), to coincide with an upswing in global trade, driven by steady GDP growth. Taking all these into consideration, we view that the Malaysian economy will grow by 4.0% in 2023, and 4.5% in 2024.

Source: AmInvest Research - 21 Nov 2023