OVERVIEW

In July, Malaysia's export sustained its growth momentum for the fourth consecutive month, registering a 12.3% YoY increase, up from 1.7% in June and exceeding market expectations of 9%. Domestic exports, which accounted for 80.1% of total exports, surged by 18.0% YoY to RM105.0bn, up from RM89.0bn. Conversely, re-exports, comprising 19.9% of total exports, contracted by 5.8% YoY to RM26.1bn, down from RM27.7bn in the previous year. Imports recorded a robust 25.4% YoY growth in July, significantly outpacing the 17.8% YoY growth in June and surpassing market forecasts of 15.3%. Consequently, the trade surplus narrowed to RM6.42bn in July, compared to RM14.29bn in June.

ASEAN's economic performance remains intricately linked to the health of major economies such as the US, China, and the EU, presenting notable downside risks to the region's trade dynamics. However, the outlook for 2024 remains cautiously optimistic, underpinned by a projected 5.4% YoY growth in Malaysia's exports of goods and services, driven by a resurgence in electronics exports amid a tech cycle upswing. Imports are expected to rise by 6.8% YoY, reflecting robust domestic demand. These forecasts are contingent on stable global economic conditions, with potential downside risks should external factors deteriorate. The anticipated recovery in electronics exports is poised to significantly support Malaysia's trade balance, underscoring the critical importance of closely monitoring global tech demand and geopolitical developments throughout the year.

July exports. Malaysia's export growth sustained its positive momentum in July, registering a 12.3% YoY increase, outpacing market expectations of 9%. This growth was primarily driven by robust domestic exports, which accounted for 80.1% of total exports, with key contributions from the manufacturing sector. Exports of manufactured goods, comprising 85.5% of total exports, rose by 10.6% YoY to RM112.08bn, marking the fifth consecutive month of expansion. The growth was fueled by strong performances in machinery, equipment, and parts, petroleum products, E&E products, and metal manufactures. Notably, machinery, equipment, and parts exports surged by 39.5% YoY in July to RM5.91bn, aligning with SEMI's forecast of a 3.4% increase in global OEM sales of semiconductor manufacturing equipment in 2024. As the 10th largest global exporter of E&E products and the 6th largest exporter of semiconductors in 2023, Malaysia is well-positioned to capitalize on these favorable industry trends.

In July, Malaysia's exports of mining goods maintained robust momentum, recording a 10.2% YoY growth to RM8.04bn, marking the second consecutive month of double-digit expansion. This growth was predominantly driven by strong LNG exports, bolstered by increased export volumes. Concurrently, agricultural exports surged by 32.8% YoY to RM10.07bn, marking the fourth consecutive month of YoY growth, supported by heightened demand for palm oil and palm oil-based products, driven by higher volumes and prices. Our in- house projection for crude palm oil (CPO) prices remains steady at RM3,800/MT for 2024, underpinned by expectations of stable pricing amidst increased CPO production and intensifying competition from other vegetable oils. Palm oil exports are expected to remain robust in 2H24, particularly with strong demand from key markets such as India and China. The Malaysian Palm Oil Board (MPOB) has indicated that Indonesia's B35 biodiesel mandate will tighten global palm oil supply, further supported by unfavorable weather conditions in 2023, anticipated tight soybean production through April 2024, and expectations of Malaysia’s palm oil stocks falling below 2.0 million tonnes, all of which are likely to provide continued support for CPO prices.

Mixed bag performance in overseas demand from key markets. In July, Malaysia's exports to the US recorded a remarkable 30.9% YoY growth, marking the fourth consecutive month of double-digit expansion and achieving the highest export value to date. This robust performance was primarily driven by strong demand for E&E products, machinery, equipment, and parts, alongside palm oil and palm oil-based agricultural products. Notably, exports to the EU surged by 14.2% YoY to RM10.28bn, underpinned by higher shipments of palm oil and related products, metal manufactures, and plastics. Conversely, exports to China contracted by 11.4% YoY to RM14.77bn, reflecting weaker demand for E&E products. Despite this decline, Malaysia saw increased exports of palm oil, palm oil-based products, and rubber products to China, partially offsetting the drop in E&E demand.

Imports registered robust growth, supported by all three main categories. In July, Malaysia's imports surged by 25.4% YoY to RM124.73bn, driven by significant increases across key categories. Intermediate goods, a forward indicator of export performance, soared by 41.2% YoY, reflecting higher imports of parts and accessories for non-transport capital goods. Capital goods imports also posted a strong 44.4% YoY growth, supported by increased purchases of non-transport capital goods. Meanwhile, consumption goods rose by 25.5% YoY, largely due to higher imports of processed food and beverages for household consumption. As a result, the trade surplus narrowed to RM6.42bn in July, down from RM14.29bn in June, indicating a robust import demand outpacing export growth.

TRADE OUTLOOK

In 2Q24, global semiconductor industry sales surged by 18.3% YoY and 6.5% QoQ, marking a robust recovery in the sector. This growth trajectory, the first QoQ increase since 4Q23, underscores the resilience of the global semiconductor market. Notably, June sales exhibited strong momentum, rising both MoM and YoY, with the Americas market spearheading this expansion, recording a 42.8% YoY growth. The World Semiconductor Trade Statistics (WSTS) forecasts a 16% YoY growth for the global semiconductor market in 2024, followed by a further 12.5% expansion in 2025, potentially driving the market to an estimated US$687bn. These positive projections bode well for Malaysia, where the electronics and electrical (E&E) sector, constituting over 40% of total exports, stands to gain significantly. As the 10th largest global exporter of E&E products and the 6th largest in semiconductors in 2023, Malaysia's strategic position is further reinforced by its 7% share in global semiconductor trade and 13% in back-end operations, positioning it to capitalise on the anticipated market upswing.

The anticipated uptick in electronics exports, bolstered by favourable base effects, is likely to cushion some of the adverse impacts on Malaysia’s trade outlook. We project Malaysia’s exports of goods and services to grow by +5.4% YoY in 2024, underpinned by a recovery in global demand and a robust electronics sector. Concurrently, global GDP growth is expected to reach 3.0% in 2024, providing a supportive external environment. Malaysia’s high trade openness, as reflected in a merchandise trade-to-GDP ratio of 144.7% in 2023, underscores its vulnerability to global economic cycles, making these projections critical to the country’s economic trajectory.

Malaysia recorded a strong GDP growth of 5.9% YoY in 2Q24, marking the second consecutive quarter of robust expansion and positioning the economy to surpass BNM’s full-year GDP forecast range of 4.0% to 5.0%. The 1H24 GDP growth of 5.1% has already outpaced our full-year projection of 4.7%, indicating that economic momentum is likely to persist into 2H24. With sustained positive growth drivers, we anticipate GDP could exceed the upper bound of the official target range. As a result, we expect the government to revise its 2024 GDP growth forecast upwards during the tabling of Budget 2025 on 18 October, which could bolster investor confidence and create additional trade opportunities.

The IMF anticipates a recovery in world trade growth to approximately 3.25% annually in 2024-2025, realigning with global GDP growth. However, the initial uptick in 1Q24 is projected to decelerate as manufacturing activity remains muted. Despite the rise in cross-border trade restrictions, particularly between geopolitically distant blocs, the global trade-to-GDP ratio is expected to maintain stability. Over the next two years, global trade growth is forecasted to gradually accelerate, supported by lower inflation and rising incomes in advanced economies, which are expected to enhance real wages and stimulate demand for goods, including imports.

According to the WTO's forecast (10 April 2024), merchandise trade volume is projected to expand by 2.6% in 2024 and 3.3% in 2025. The outlook for commercial services trade is similarly optimistic, with digitally delivered services showing significant resilience, having grown by 51% in value terms between 2019 and 2023. Nevertheless, the trade forecast is subject to substantial downside risks, including the resurgence of protectionism, escalating geopolitical tensions, ongoing regional conflicts in the Middle East and Europe, and potential disruptions from commodity price shocks and climate-related weather events.

Source: PublicInvest Research - 20 Aug 2024