OVERVIEW

Malaysia's total exports turned negative in February, posting a year-on-year decline of 0.8%, a fall from the +8.7% growth in January. This was in tandem with the decline in re-exports, while domestic exports remained positive amid uncertainties in commodity prices during that period. Gross imports continued to grow positively by 8.4% YoY in February (18.7% in January). The country's trade surplus edged higher to RM10.9bn in February from RM10.2bn in January.

The country's reliance on the economic fortunes of major players such as the US, China, and the EU poses risks to ASEAN trade. However, we anticipate an improvement this year, supported by the expected global trade recovery and brighter prospects in electronics exports amid the tech cycle recovery. Consequently, we forecast Malaysia's goods and services exports to rebound by 5.4% in 2024, with imports growing at 6.8%, though subject to revision if global conditions deteriorate.

February exports. The latest data indicates a fall in Malaysia's export growth, as reflected in the negative YoY growth of 0.8% in February, compared to an increase of 8.7% in January. This trend can be attributed to the decline in re- exports within the manufacturing and agricultural sectors. Exports of manufactured goods dominated total exports in February with a share of 83.6%, recorded a decline of 2.4% YoY in February, attributed to E&E, petroleum products and chemical and chemical products.

However, mining goods exports rose by 16.8% YoY in February. The increase was driven by higher exports of LNG, crude petroleum as well as petroleum condensates and other petroleum oil. Nonetheless, the agriculture goods exports declined by 4.8% YoY in February. The performance was primarily weighed down by lower exports of palm oil and palm oil-based agriculture products that was affected by weaker prices of exports. 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.

Mixed performance in overseas demand in key markets. Malaysia's exports to its major trading partners exhibited a varied performance in February. The United States continued to strengthen by 10.1% YoY in February (11.9% in January). Meanwhile, exports to Japan rose by 5.6% YoY in February. Exports to the EU edged down by 1.7% YoY in February. Nonetheless, exports to China fell marginally by 0.4% YoY in February (-7.4% in January), weighed down by lower exports of E&E products.

Imports remained positive, supported by all three main categories. Gross imports remained positive at 8.4% YoY in February (18.7% in January). Imports of intermediate goods, which are used as an indicator of export performance going forward, continued to grow by 14.3% YoY in February, from 21.3% YoY in January. Meanwhile, imports of consumption goods grew by 19.7% YoY in February (25.3% in January). Imports of capital goods continued to register double-digit growth at 30.3% YoY in February (41.5% in January). As a result, the country's trade surplus edged higher to RM10.9bn in February from RM10.2bn in January.

TRADE OUTLOOK

Anticipating a positive trajectory, the 2024 global semiconductor market forecasts a robust recovery, poised for double-digit growth at 13.1%, outstripping earlier projections of 11.8%. This augurs a pivotal juncture for Malaysia's manufacturing sector and the semiconductor industry worldwide. The anticipated upswing is particularly promising for major E&E exporters like Malaysia, given that exports of E&E products constitute over 40% of the nation's total gross exports. Furthermore, the Ministry of Finance anticipates a substantial 5.5% increase in manufactured goods exports for 2024, further underpinning the optimistic sentiment.

However, Malaysia's vulnerability to global economic fluctuations, particularly in electronics and semiconductor sectors, is underscored by anticipated modest global economic growth in 2024. Heavy reliance on key trade partners like the US, China, and the EU heightens concerns for ASEAN trade. Additionally, the major elections in significant trading partners this year, including the US, South Korea, and India, introduce further complexity, potentially shaping international trade dynamics. The escalation of the Red Sea Crisis poses a significant threat, potentially disrupting global supply chains and elevating business costs. Despite these risks, an anticipated uptick in electronics exports and favourable base effects could partially offset negative impacts. As such, we forecast Malaysia's exports of goods and services to rebound with a growth rate of +5.4% in 2024. Moreover, the IMF anticipates a 3.1% expansion in global GDP, driven by improved growth prospects in the world's largest economies, the US and China, both of which are Malaysia’s foremost trading partners. This enhanced global economic outlook is expected to be bolstered by heightened private and public expenditures, increased labour force engagement, enhanced supply chain dynamics, and more favourable energy and commodity prices. MITI and its agency, MATRADE, maintain a cautious yet optimistic stance, remaining vigilant regarding global risks while actively seeking export opportunities in both existing and new markets, in alignment with the National Trade Blueprint.

The World Trade Organization (WTO) projects a 3.3% expansion in global trade for 2024, aligning with a steady 2.5% global GDP growth rate. While trade may lag behind GDP in the preceding year, it is expected to surpass it in 2024, reflecting the influence of business-cycle sensitive investment and durable goods. Forecast risks include a possible slowdown in China and resurgence of inflation in advanced economies, potentially requiring prolonged higher interest rates. Conversely, if inflation declines rapidly, allowing for an early shift from contractionary monetary policies, growth could exceed expectations.

Source: PublicInvest Research - 19 Mar 2024