OVERVIEW

In March, Malaysia's export trajectory persisted in the negative domain, reflecting a year-on-year contraction of 0.8%, mirroring the downturn recorded in February. 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 12.5% YoY in March (8.0% in February). The country's trade surplus edged higher to RM12.8bn in March from RM11.2bn in February.

The ASEAN region's vulnerability to the economic performance of key players such as the US, China, and the EU introduces notable risks to its trade dynamics. Nevertheless, there is an optimistic outlook for the current year, underpinned by anticipated improvements in global trade dynamics alongside brighter prospects in electronics exports amid the resurgence of the tech cycle. As a result, our projections suggest a potential rebound in Malaysia's goods and services exports by 5.4% in 2024, complemented by a growth rate of 6.8% in imports. However, these forecasts remain contingent upon the trajectory of global economic conditions, with the possibility of revisions should external circumstances deteriorate.

March exports. The latest data indicates a continued fall in Malaysia's export growth, as reflected in the negative YoY growth of 0.8% in March, mirroring the downturn recorded in February. This trend can be attributed to the decline in re-exports within the agricultural sectors. Exports of manufactured goods dominated total exports in March with a share of 85.2%, recording a rebound of +0.7% YoY in March, attributed to machinery, equipment and parts, transport equipment as well as iron and steel products.

Mining goods exports registered the second consecutive month of YoY expansion in March 2024, expanding by 0.2%. The increase was driven by higher exports of LNG. Nonetheless, the agriculture goods exports declined by 17.3% YoY in March. The performance was primarily weighed down by lower exports of palm oil and palm oil-based agriculture products that were 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. In March, Malaysia's exports to its primary trading partners demonstrated a mixed performance, with the majority of countries experiencing declines in growth rate. The United States continued to strengthen by 3% YoY in March (10.1% in February). Meanwhile, exports to Japan declined by 5.4% YoY in March. Exports to the EU edged down by 10.3% YoY in March. Nonetheless, exports to China fell by 2.1% YoY in March (-0.4% in February), weighed down by slower exports of palm oil and palm oil-based agriculture products, metalliferous ores and metal scrap as well as E&E products.

Imports remained positive, supported by all three main categories. Gross imports remained positive at 12.5% YoY in March (8.0% in February). Imports of intermediate goods, which are used as an indicator of export performance going forward, continued to grow by 10.5% YoY in March, from 13.7% in February. Meanwhile, imports of consumption goods grew by 1.2% YoY in March (19.6% in February). Imports of capital goods continued to register double-digit growth at 66.2% YoY in February (30.0% in February). Consequently, the country's trade surplus edged higher to RM12.8bn in March from RM11.2bn in February, marking the 47th consecutive month of surplus since May 2020.

TRADE OUTLOOK

Despite a marginal MoM decline, global semiconductor sales in February continued to outpace those of the same month last year, underscoring the sustained momentum in YoY growth that has characterised the market since mid-2023. 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. During the initial two months of 2024, Suez Canal trade experienced a 50% decrease compared to the preceding year, concurrently, trade via the Panama Canal witnessed a 32% decline, precipitating disruptions in supply chains and introducing distortions into pivotal macroeconomic metrics.

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. Furthermore, the IMF forecasts a 3.2% increase in global GDP for the year 2023. This projection for 2024 has been adjusted upward by 0.1 percentage points compared to the January 2024 WEO Update, and by 0.3 percentage points relative to the October 2023 WEO forecast. However, despite these revisions, the outlook for global growth in 2024 remains below the historical annual average of 3.8% for the period spanning 2000 to 2019. This subdued growth trajectory is attributed to the implementation of restrictive monetary policies and the scaling back of fiscal support, alongside sluggish underlying productivity growth. As articulated in the recent trade performance note, given Malaysia's status as a highly open economy with a merchandise trade to GDP ratio of 144.7% in 2023, it is susceptible to influences from global developments. Consequently, both MITI and its principal export-oriented agency, MATRADE, will maintain a vigilant stance to effectively monitor and mitigate risks associated with trade growth and investment inflows.

The World Trade Organization (WTO) projects that the volume of global merchandise trade will expand by 2.6% in 2024, followed by a further increase of 3.3% in 2025, driven by a resurgence in demand for traded goods subsequent to a contraction experienced in 2023. Despite the outbreak of conflict in Ukraine, trade volume witnessed a decline of 1.2% last year after registering a robust expansion of 3.0% in 2022. The current forecast, however, is encumbered by a notable degree of uncertainty stemming from various risk factors prevalent in the global economy, including regional conflicts, geopolitical tensions, and escalating protectionist measures. Should the current projections materialise, trade volume growth in 2024 could reach as high as 5.8% or plummet to as low as -1.6%. Conversely, the anticipated moderation in inflation for 2024 is poised to catalyse a rebound in the consumption of manufactured goods, thereby bolstering merchandise trade volume growth over both 2024 and 2025. Should recent inflationary declines persist, policymakers are expected to initiate interest rate cuts, consequently stimulating investment expenditure, particularly in capital goods trade, albeit with a lag effect. As cost pressures alleviate and business sentiment improves within the EU, consumption and investment activities are anticipated to stabilise in 2024 and strengthen further in 2025.

Source: PublicInvest Research - 22 Apr 2024