OVERVIEW

In November, the YoY growth rate for Malaysia’s export continued to contract by 5.9%, from -4.5% in October. This was in tandem with the decline in domestic exports, amid high base effects from last year and slower global demand as well as uncertainties in commodity prices. Gross imports edged up by 1.7% YoY in November (-0.3% in October). The country's trade surplus edged lower to RM12.4bn in November from RM12.9bn in October..

The conjunction of a global economic slowdown, China's recovery lag, persisting inflationary strains, the effects of consecutive policy rate hikes by the US Federal Reserve, and diminishing future demand possibilities collectively underpin a subdued short-term projection. In accordance with these circumstances, our projections indicate a further decline of 7.4% YoY in export growth and a 7.0% contraction in import growth for this year. Nevertheless, we hold the view that the outlook will ameliorate next year, congruent with the anticipated upturn in global trade performance and brighter prospects in the electronics exports amid tech cycle recuperation. Consequently, we expect Malaysia's exports of goods and services to rebound to a positive growth of 5.4% in 2024, while imports to grow at 6.8% in 2024.

November exports. The latest data indicates a continued deterioration in Malaysia's export growth, as reflected in the continued YoY decrease of 5.9% in November, compared to a contraction of 4.5% in October. This trend can be attributed to the decline in domestic exports within the manufacturing and agricultural sectors. Exports of manufactured goods dominated total exports in November with a share of 83.8%, continued to fall by 6.7% YoY, attributed to lower shipments was recorded for electrical and electronic (E&E) products, chemicals and chemical products as well as transport equipment..

Mining goods exports rose by 0.5% YoY in November (-21.9% in October). This was the first positive growth after five consecutive months of decline driven by strong exports of crude petroleum as well as petroleum condensates and other petroleum oil. However, the agriculture goods exports contracted by 5.5% in November, from +3.3% in October. The sluggish performance was attributed to lower exports of palm oil and palm oil-based agriculture products that was affected significantly by weaker export prices of palm oil. Our in-house projection for crude palm oil (CPO) prices persists unaltered at RM3,800/MT for 2023 and 2024. We expect steady CPO prices in 2024 due to higher CPO production and stiffer competition from other vegetable oils.

Frail performance in overseas demand in key markets. Malaysia's exports to its major trading partners exhibited a synchronised downward trajectory in November. The United States weakened and declined by 8.5% YoY in November (+3.9% in October), driven mainly by lower exports of E&E products Despite the contraction, export growth was recorded for rubber products, machinery, equipment and parts as well as wood products. Meanwhile, exports to Japan fell by 18.3% YoY in November. Exports to the EU declined by 6.9% YoY in November on account of reduced exports of transport equipment, petroleum products as well as palm oil and palm oil-based agriculture products. Exports to China fell by 8.4% YoY in November (-23.8% in October), weighed down by lower exports of E&E products, palm oil and palm oil-based agriculture products as well as chemicals and chemical products.

Imports improved, supported by capital goods and consumption goods. Gross imports edged up by 1.7% YoY in November (-0.3% in October). Imports of intermediate goods, which are used as an indicator of export performance going forward, contracted by 5.2% YoY in November, from -8.1% in October, following lower imports of parts and accessories for non-transport capital goods. Meanwhile, imports of consumption goods rose by 2.2% YoY in November (9.9% in October). Imports of capital goods rose drastically by 53.3% YoY in November (+8.6% in October). As a result, the country's trade surplus edged lower to RM12.4bn in November from RM12.9bn in October.

TRADE OUTLOOK.

Due to Malaysia's substantial reliance on trade, with a high total trade value relative to its GDP and a significant export orientation, the expected moderate global economic growth might adversely impact the nation's exports in 2024. This vulnerability stems from Malaysia's strong dependence on global economic health, especially in electronics, notably the semiconductor industry. Any forthcoming downturn in developed economies such as the US, China, and the EU could negatively affect trade within ASEAN. However, we anticipate that this downside risk will be partially counterbalanced by the projected upturn in electronics exports. Consequently, despite an estimated decline of -7.4% in 2023, we expect Malaysia's exports of goods and services to rebound to a positive growth of +5.4% in 2024, following a +24.9% growth in 2022..

The World Trade Organization (WTO) growth outlook predicts a gathering momentum in global merchandise trade for 2024, projecting a growth rate of 3.3%. This slight adjustment from the earlier estimate of 3.2% made in April aligns with a consistent GDP growth rate of 2.5%. The subdued trade growth observed this year in comparison to GDP, followed by an anticipated reversal in 2024, resonates with historical patterns seen in industries sensitive to business cycles, notably investments and durable goods. However, concerns arise as signs of supply chain fragmentation emerge, potentially posing a challenge to the relatively optimistic outlook for 2024.

The Semiconductor Industry Association (SIA) has reported an enduring MoM surge in global semiconductor sales for the eighth consecutive month, signalling a consistent and encouraging upward trend in chip demand as 2023 draws to a close. This sustained momentum forecasts a robust recovery in global semiconductor sales for 2024, now estimated at a growth rate of 13.1%, up from the previous projection of 11.8%. This anticipated growth marks a potential pivotal moment for both Malaysia's manufacturing sector and the global semiconductor industry. Furthermore, the Ministry of Finance anticipates a substantial 5.5% expansion in exports of manufactured goods in 2024, further underpinning the positive outlook.

Source: PublicInvest Research - 20 Dec 2023