In December, the YoY growth rate for Malaysia’s export contracted by 10.0%, from -6.1% in November. This was in tandem with the decline in both domestic exports and re-exports, amid high base effects from 2022 and slower global demand as well as uncertainties in commodity prices during that period. Gross imports edged up by 2.9% YoY in December (1.5% in November). The country's trade surplus edged lower to RM11.8bn in December from RM12.2bn in November..

As for 2023 as a whole, Malaysia's trade dynamics displayed resilience amidst a challenging global economic environment, surpassing RM2trn for the third consecutive year, albeit registering a 7.3% contraction compared to the preceding year. This dip can be attributed to several key factors, including a deceleration in global demand, diminished commodity prices, geopolitical uncertainties, a pronounced inflationary environment, a downturn in the semiconductor sector, and the high base effect from the preceding year. Notably, despite the headwinds, the export sector experienced an 8% decline. However, this marked the third successive year that exports eclipsed the RM1trn threshold, achieving 82.4% of the target set for 2025 as outlined in the Mid-Term Review of the 12th Malaysia Plan. Conversely, imports in 2023 reached a commendable milestone, breaching the RM1trn mark for the second time, albeit receding by 6.4% to RM1.212 trillion compared to 2022. Importantly, Malaysia sustained its trade surplus for the 26th consecutive year since 1998, reaching RM214.1bn..

The nation's significant dependence on the economic well-being of key players like the US, China, and the EU could lead to adverse impacts on ASEAN trade. Nonetheless, we hold the view that the outlook will ameliorate this 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. Additionally, the Ministry of Finance foresees a noteworthy 5.5% expansion in manufactured goods exports for 2024, reinforcing the optimistic outlook.

December exports. The latest data indicates a continued deterioration in Malaysia's export growth, as reflected in the YoY decrease of 10.0% in December, compared to a contraction of 6.1% in November. This trend can be attributed to the decline in domestic exports and re-exports within the manufacturing and agricultural sectors. Exports of manufactured goods dominated total exports in December with a share of 83.6%, which fell by 10.3% YoY, attributed to lower shipments was recorded for electrical and electronic (E&E) products, petroleum products, transport equipment, chemicals and chemical products as well as optical & scientific equipment..

Mining goods exports rose by 9.1% YoY in December (0.5% in November). This was the second positive growth after five consecutive months of decline driven by strong exports of crude petroleum as well as condensates & other petroleum oil. However, the agriculture goods exports contracted by 25.9% in December, from -5.5% in November. 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 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 December. The United States continued to weaken and decline by 5.1% YoY in December (-8.7% in November). Meanwhile, exports to Japan fell by 4.7% YoY in December. Exports to the EU declined by 25.5% YoY in December. Exports to China fell by 1.5% YoY in Deember (-8.4% in November), weighed down by lower exports of petroleum products as well as palm oil and palm oilbased agriculture products.

Imports improved, supported by capital goods and intermediate goods. Gross imports edged up by 2.9% YoY in December (1.7% in November). Imports of intermediate goods, which are used as an indicator of export performance going forward, improved and rebounded by 10.1% YoY in December, from -5.6% in November. Meanwhile, imports of consumption goods declined by 0.7% YoY in December (2.4% in November). Imports of capital goods continue to register double-digit growth at 24.6% YoY in December (+51.3% YoY in November). As a result, the country's trade surplus edged lower to RM11.8bn in December from RM12.2bn in November.

TRADE OUTLOOK.

Anticipating a positive turn, the global semiconductor market is poised for double-digit growth in 2024, projecting a robust recovery with an estimated growth rate of 13.1%, surpassing the earlier projection of 11.8%. This forecast signals a potentially pivotal period for both Malaysia's manufacturing sector and the global semiconductor industry. Additionally, the Ministry of Finance foresees a noteworthy 5.5% expansion in manufactured goods exports for 2024, reinforcing the optimistic outlook

Malaysia's susceptibility to global economic conditions, given its heavy reliance on trade, particularly in electronics and the semiconductor industry, raises concerns amid expected moderate global economic growth in 2024. The nation's significant dependence on the economic well-being of key players like the US, China, and the EU could lead to adverse impacts on ASEAN trade. Furthermore, the outlook for 2024 introduces an additional layer of complexity, marked by significant political shifts as major elections are slated to occur in pivotal trading partners, notably the United States, the Republic of Korea, Indonesia, and India. The outcome of these elections holds the potential to exert a considerable influence on the trajectory of international trade and diplomatic relations. Despite these downside risks, an anticipated upturn in electronics exports is likely to partially mitigate the negative effects. Consequently, we project Malaysia's exports of goods and services to rebound with a positive growth of +5.4% in 2024..

The World Trade Organization (WTO) growth outlook foresees a 3.3% expansion in global trade for 2024, reflecting a slight adjustment from the April estimate of 3.2% made last year. Aligned with a consistent 2.5% GDP growth rate in 2024, trade is anticipated to lag behind GDP in the previous year but surpass it in 2024, a fluctuation not uncommon due to the significant share of business-cycle sensitive investment and durable goods in trade relative to GDP. Forecast risks encompass a potential sharper slowdown in China and a resurgence of inflation in advanced economies, necessitating prolonged higher interest rates. Conversely, growth could outpace expectations if inflation decreases swiftly, permitting an early departure from contractionary monetary policies.

Source: PublicInvest Research - 22 Jan 2024