OVERVIEW

In May, Malaysia's export sector demonstrated robust performance with a 7.3% YoY increase, surpassing market projections of 0.4%. This also follows a 9.0% YoY rise in April. Domestic exports, which accounted for 82.7% of the total, surged by 13.2%, climbing from RM93.6bn to RM106.0bn. Conversely, re- exports, representing 17.3% of total exports, declined by 14.1%, dropping from RM25.9bn in the previous year. Imports also saw a significant growth of 13.8% YoY, slightly down from the 15.5% YoY growth recorded in April. Consequently, the trade surplus expanded to RM10.14bn, up from RM7.74bn in April.

Economic performance of the ASEAN region remains highly sensitive to fluctuations in key economies such as the US, China, and the EU, introducing significant risks to its trade dynamics. Nonetheless, the outlook for 2024 is cautiously optimistic, bolstered by anticipated enhancements in global trade and a revival in electronics exports driven by a tech cycle upswing. Our forecasts predict a 5.4% YoY increase in Malaysia's goods and services exports, alongside a 6.8% YoY rise in imports for 2024. However, these projections are predicated on stable global economic conditions, with the possibility of downward revisions should external economic circumstances deteriorate.

May exports. In May, Malaysia's export sector displayed strong performance, recording a 7.3% YoY increase, exceeding market expectations of 0.4%. This also follows a 9.0% YoY growth in April. This positive trend was predominantly driven by higher domestic exports across key sectors. Manufactured goods, which accounted for 86.2% of total exports, experienced their third consecutive month of YoY expansion, growing by 8.3% in May. This growth was underpinned by robust exports of electrical and electronic (E&E) products, manufactures of metal, and optical and scientific equipment.

In May, exports of mining goods declined by 17.2% YoY, primarily due to reduced shipments of liquefied natural gas (LNG) stemming from lower volumes and prices. Conversely, agricultural goods exports sustained their double-digit YoY growth for the second consecutive month, rising by 22.1%. This increase was driven by higher exports of palm oil and palm oil-based agricultural products, supported by increased volumes and export prices. Our in-house projection for crude palm oil (CPO) prices persists unaltered at RM3,800/MT for 2024. We anticipate stable CPO prices this year, attributed to increased CPO production and intensified competition from other vegetable oils.

Synchronised positive performance in overseas demand from key markets. In May, exports to the United States surged by a robust 17.4% YoY, maintaining the double-digit growth seen in April at 17.3%. Meanwhile, shipments to Japan showed a notable recovery, rising by 2.4% YoY after experiencing two consecutive months of decline. Exports to the EU also exhibited positive momentum, increasing by 7.2% YoY. Concurrently, exports to China recorded growth for the second consecutive month, up by 1.6% YoY following a 2.1% rise in April. This growth was driven by heightened demand for paper and pulp products, petroleum products, and palm oil and its derivatives. These trends highlight the resilient demand in key international markets.

Imports remained positive, supported by all three main categories. In May, Malaysia’s imports exhibited a notable increase of 13.8% YoY, reaching RM118.09bn. Intermediate goods, which are used as an indicator of export performance going forward, were valued at RM68.13bn and grew by 24.1% YoY, driven by a rise in imports of parts and accessories for non-transport capital goods. Capital goods, surged by 40.5% YoY, primarily due to heightened imports of non-transport capital goods. Consumption goods saw a 14.7% YoY increase, attributed to higher imports of durables. Consequently, the trade surplus expanded to RM10.14bn, up from RM7.74bn in April.

TRADE OUTLOOK

In April, global semiconductor sales increased by 1.1% MoM, marking the first positive monthly growth this year and reflecting a burgeoning market momentum as we approach mid-year. The sector has consistently posted double-digit YoY gains each month in 2024. The latest industry forecast suggests robust annual growth, with sales to the Americas and Asia Pacific projected to rise by 25.1% and 17.5%, respectively. The World Semiconductor Trade Statistics (WSTS) has revised its global semiconductor market growth forecast upwards to 16%, surpassing the previous estimate of 13.1%. Looking ahead to 2025, WSTS anticipates a 12.5% growth, bringing the market to an estimated US$687bn. This optimistic outlook is significant for Malaysia's manufacturing sector, where E&E exports constitute over 40% of total exports. Malaysia, ranked as the 10th largest global exporter of E&E products and the 6th largest exporter of semiconductors in 2023, stands to benefit greatly from these favourable projections.

In the near term, the elasticity of global trade in response to global output is anticipated to remain subdued compared to pre-pandemic levels, due to tepid investment growth and the widespread implementation of trade restrictions. The outlook for global trade is fraught with various downside risks, including weaker-than-expected global demand, escalating geopolitical tensions, and further disruptions in maritime transport. The upcoming elections in numerous countries add another layer of uncertainty, potentially prompting more protectionist trade policies that could dampen trade prospects and economic activity. Recent incidents, such as attacks on commercial vessels in the Red Sea and climate-induced disruptions in the Panama Canal, have impacted maritime transit and freight rates along these vital routes. Despite these challenges, global supply chain pressures and delivery times have not significantly worsened, with adverse effects largely confined to specific regions and industries.

Despite prevailing downside risks, a forecasted uptick in electronics exports alongside favourable base effects is expected to offset some negative impacts. We anticipate Malaysia’s exports of goods and services to rise by +5.4% YoY in 2024. The IMF projects global GDP growth of 3.2% in 2024, yet this remains below the historical average of 3.8% (2000-2019), hindered by restrictive monetary policies, diminished fiscal support, and sluggish productivity growth. Malaysia’s high trade openness, reflected by a merchandise trade-to-GDP ratio of 144.7% in 2023, underscores its vulnerability to global economic fluctuations. The IMF has revised Malaysia’s GDP growth forecast marginally higher to 4.4% YoY for 2024, up from the January estimate of 4.3%. Nonetheless, Malaysia has fallen by seven spots in the IMD’s World Competitiveness Ranking 2024, now ranking 34th out of 67 countries, down from 27th last year. In the Asia-Pacific region, Malaysia has also slipped four positions, now standing at 10th out of 14 countries.

The WTO forecasts global merchandise trade volume to grow by 2.6% in 2024 and 3.3% in 2025, driven by a recovery in demand post the 2023 downturn. Despite the Ukraine conflict, trade volume saw a 1.2% decline last year, following a 3.0% increase in 2022. Current projections are marred by uncertainties stemming from regional conflicts, geopolitical tensions, and rising protectionism. If these projections hold, 2024 trade volume growth could span from 5.8% to -1.6%. Expected easing of inflation in 2024 is likely to bolster consumption of manufactured goods, thereby supporting trade volume growth in both 2024 and 2025. Continued deflationary trends may lead to interest rate cuts, potentially spurring investment in capital goods trade, albeit with a delayed effect. As cost pressures abate and business sentiment in the EU improves, consumption and investment are projected to stabilise in 2024 and gain momentum in 2025.

Source: PublicInvest Research - 21 Jun 2024