OVERVIEW

In June, Malaysia's export sector recorded a modest growth of 1.7% YoY, decelerating from May's robust 7.1% increase and falling short of market expectations of 4.6%. Domestic exports, which accounted for 79.7% of total exports, rose by 7.1%, increasing from RM93.8bn to RM100.4bn. In contrast, re-exports, comprising 20.3% of total exports, contracted by 15.1% YoY, declining from RM30.2bn in the previous year. Imports exhibited a significant growth of 17.8% YoY in June, surpassing the 13.4% YoY growth observed in May. The trade surplus widened to RM14.29bn in June, up from RM9.95bn in May, indicating a strengthening trade balance despite the slowdown in export growth.

The economic performance of the ASEAN region remains highly susceptible to fluctuations in major economies such as the US, China, and the EU, which introduce significant risks to its trade dynamics. Nonetheless, the outlook for 2024 is cautiously optimistic, supported by anticipated improvements in global trade and a resurgence in electronics exports driven by a tech cycle upswing. We forecast a 5.4% YoY increase in Malaysia's exports of goods and services, complemented by a 6.8% YoY rise in imports for 2024. These projections, however, hinge on stable global economic conditions, with potential for downward revisions should external economic circumstances deteriorate. The anticipated revival in electronics exports is expected to play a critical role in bolstering Malaysia's trade balance, emphasising the need for continuous monitoring of global tech demand and geopolitical developments.

June exports. In June, Malaysia's export sector recorded a modest growth of 1.7% YoY, decelerating from May's robust 7.1% increase and falling short of market expectations of 4.6%. This growth was predominantly driven by higher domestic exports across key sectors. Manufactured goods, which accounted for 87.1% of total exports, experienced their fourth consecutive month of YoY expansion, growing by 1% in June. This was supported by higher exports of machinery, equipment and parts, palm oil-based manufactured products, rubber products, and optical and scientific equipment. Notably, exports of machinery, equipment and parts surged by 22.3% in 1H24 to RM33.23bn, primarily due to increased demand for machines and apparatus for semiconductor manufacturing. This aligns with projections by Semiconductor Equipment and Materials International (SEMI) that global OEM sales of semiconductor manufacturing equipment will grow by 3.4% in 2024. We opine that Malaysia, ranked as the 10th largest global exporter of E&E products and the 6th largest exporter of semiconductors in 2023, stands to benefit from these trends.

In June, Malaysia's exports of mining goods surged by 15.1% YoY to RM7.95bn, driven by higher exports of LNG due to increased volume and crude petroleum amid rising prices. Concurrently, exports of agricultural goods grew by 1.7% YoY to RM7.63bn, marking the third consecutive month of YoY growth. This expansion was underpinned by robust exports of palm oil and palm oil-based agricultural products, attributable to higher volumes and export prices. Our in-house projection for crude palm oil (CPO) prices remains steady at RM3,800/MT for 2024, reflecting expectations of stable prices driven by increased CPO production and heightened competition from other vegetable oils. Notably, exports of palm oil and palm oil-based products rebounded in 1H24, registering a 4.1% growth compared to the negative growth in 1H23. Looking ahead, palm oil exports are projected to remain strong in 2H24, bolstered by higher demand from key markets such as India and China.

Mixed bag performance in overseas demand from key markets. In June, Malaysia's exports to the United States surged by 14% YoY, sustaining the robust double-digit growth observed in May at 17.4%. Conversely, exports to the EU declined by 8.2% YoY, driven by reduced shipments of electrical and electronic (E&E) products, metal manufactures, and optical and scientific equipment. Similarly, exports to China contracted by 2% YoY, reversing the 1.6% YoY growth seen in May, primarily due to a downturn in E&E exports. However, this decline was mitigated by increased exports of liquefied natural gas (LNG), paper and pulp products, and palm oil-based manufactured products. This mixed performance underscores varying demand dynamics across different regions and product categories.

Imports remained positive, supported by all three main categories. In June, Malaysia’s imports exhibited a notable increase of 17.8% YoY, reaching RM111.76bn. Intermediate goods, which are used as an indicator of export performance going forward, were valued at RM60.84bn and grew by 37.2% YoY in June, driven by a rise in imports of parts and accessories for non- transport capital goods. Capital goods, surged by 23.5% YoY, primarily due to heightened imports of non-transport capital goods. Consumption goods saw a 13.5% YoY increase, attributed to higher imports of processed food and beverages mainly for household consumption. Consequently, the trade surplus expanded to RM14.29bn in June, up from RM9.95bn in May.

TRADE OUTLOOK

In May, global semiconductor sales rose by 4.1% MoM and 19.3% YoY, marking the most significant YoY increase since April 2022. The global semiconductor market has consistently grown YoY throughout each month of 2024. The Americas market demonstrated robust performance with a remarkable 43.6% YoY sales increase. In May, the World Semiconductor Trade Statistics (WSTS) has revised its global semiconductor market growth forecast upwards to 16%, exceeding the previous estimate of 13.1%. For 2025, WSTS anticipates a growth rate of 12.5%, bringing the market to an estimated US$687bn. This optimistic outlook is particularly significant for Malaysia's manufacturing sector, where E&E exports account for over 40% of total exports. As the 10th largest global exporter of E&E products and the 6th largest exporter of semiconductors in 2023, Malaysia is poised to benefit substantially from these favourable projections. Malaysia accounts for 7% of global semiconductor trade and 13% of back-end operations.

In the near term, the elasticity of global trade in response to global output is expected to remain subdued compared to pre-pandemic levels, primarily due to tepid investment growth and widespread trade restrictions. The outlook for global trade is clouded by various downside risks, including weaker-than- expected global demand, escalating geopolitical tensions, and further disruptions in maritime transport. Upcoming elections in numerous countries add another layer of uncertainty, potentially leading to 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 affected maritime transit and freight rates along these crucial 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, an anticipated increase in electronics exports, coupled with favourable base effects, is expected to mitigate some negative impacts. We forecast Malaysia’s exports of goods and services to rise by +5.4% YoY in 2024. Additionally, we project global GDP growth to reach 3.0% in 2024. Malaysia’s high trade openness, demonstrated by a merchandise trade-to-GDP ratio of 144.7% in 2023, highlights its susceptibility to global economic fluctuations. However, Malaysia has dropped seven positions in the IMD World Competitiveness Ranking 2024, now ranking 34th out of 67 countries, down from 27th last year. Regionally, Malaysia has fallen four places in the Asia-Pacific, now ranking 10th out of 14 countries. Prime Minister Datuk Seri Anwar Ibrahim noted that the failure to implement targeted subsidies is a significant factor contributing to Malaysia's decline in the IMD World Competitiveness Rankings 2024.

The World Trade Organization (WTO) projects global merchandise trade to grow by 2.6% in 2024 and 3.3% in 2025, following a 1.2% contraction in 2023 and a 3.0% expansion in 2022 despite the Ukraine conflict. High energy prices and inflation dampened demand for trade-intensive goods last year, but as inflation eases and real household incomes improve, demand is expected to recover over the next two years. The 2023 decline masked regional variations: sharp import declines in Europe, decreases in North America, flat demand in Asia, and increases in major fuel-exporting economies. If forecasts hold, Asia is expected to drive trade volume growth in 2024 and 2025. However, considerable uncertainty persists due to global economic risks, including conflicts and protectionism, with 2024 trade growth potentially ranging from 5.8% to -1.6%.

Source: PublicInvest Research - 19 Jul 2024