KUALA LUMPUR (March 20): The growth rate of Malaysia’s exports is expected to slow down this year, following the stellar 25% year-on-year (y-o-y) growth in 2022, as multiple headwinds weigh on prospects, according to economists.

The cautious view on trade growth outlook is mainly predicated on downside risks, stemming from slower growth in advanced economies, impact of tightening financial conditions, projected ease in global commodity prices as well as uncertainties in development of geopolitical tensions, according to RHB Research.

“The S&P Global Malaysia Manufacturing Purchasing Managers’ Index (PMI) remained in contractionary territory at 48.4 points in February 2023 versus 46.5 points in January 2023 amid softness in new export orders,” stated the research firm’s economist Chin Yee Sian in a March 20 report.

However, RHB Research expects trade performance to show some signs of improvement by the second half of the year, lifted by higher global demand for goods and services amid recovery in global economic growth.

According to MIDF Research, exports are likely to expand slower this year at 9.2% y-o-y, while import growth is likely at 9.5% y-o-y, due to the weaker global demand expected.

This is despite Malaysia’s exports beating economists’ estimates in February to record a 9.8% y-o-y growth to RM112.3 billion from RM102.3 billion. In January, Malaysia’s exports grew a marginal 1.6% y-o-y, at RM112.8 billion.

The consensus estimate in a Bloomberg survey for February’s export is 4.7% y-o-y growth, while Reuters’ poll showed export growth expanding 4.5% y-o-y.

Malaysia’s February trade data remained on an upward trajectory as the trade balance posted double-digit growth of 11% to RM205 billion in February this year.

Imports for the month increased 12.4% to RM92.7 billion. A trade surplus has been recorded for 34 consecutive months since May 2020, valued at RM19.56 billion.

While Malaysia recorded stellar y-o-y growth numbers in February, RHB Research’s Chin pointed out that export momentum, on a month-on-month (m-o-m), three-month moving average, seasonally adjusted basis, in both nominal and real terms, stayed soft for the month of February.

In February, both exports and imports declined m-o-m by 0.3% and 1.9% respectively.

“We continued to see signs of weakness in shipments of E&E (electrical and electronics) products. Slight improvements were observed in commodity-based products with higher shipments of petroleum products.

“In terms of destination, slower outbound shipments were observed to major economies, i.e. China and the European Union. Likewise, the import momentum slowed amid lower imports of consumption goods,” stated Chin in the report.

Meanwhile, HSBC Global Research said Malaysia’s February export growth of 9.8% also exceeded its estimated growth of 6.7%.

This better-than-expected growth showcases Malaysia's external sector has displayed enormous resilience with positive growth when regional peers have suffered from plunging exports, albeit at smaller-than-expected magnitudes recently, said its economist Yun Liu in a note.

She attributed Malaysia's export growth of over 5% y-o-y in the first two months of 2023 to a favourable mix of export products both from E&E products and commodities.

“Defying a cooling global tech cycle, robust electronics products remain the main pillar of growth in exports. Unlike Singapore's recent 30%-plus y-o-y plunge in semiconductors, Malaysia's electronics shipments continued to grow by around 8% y-o-y.

“Part of the resilience is due to its unique position as a large producer of automotive chips, where demand has stayed much more resilient than that for other consumer electronics,” Liu noted.

“The other part of the equation is structural, as Malaysia has gained substantial market shares in certain semiconductor categories, thanks to consistent tech FDI [foreign direct investment] inflows,” she added.

In addition, she said Malaysia's external sector also continues to receive a boost from commodities, bolstered by petroleum products and liquefied natural gas, despite being offset by palm oil shipments, which mainly reflects a price correction from its peak last year, she noted.

All in all, given base effects and intensifying global trade headwinds, Liu viewed that Malaysia's external sector can only stay resilient to a certain extent, but it is holding up better than others. She expects Malaysia's economic growth to be moderate at 4% this year, from 8.7% growth in 2022.

https://www.theedgemarkets.com/node/659959