KUALA LUMPUR (March 29): Following two consecutive years of double-digit expansion, Malaysia’s gross exports are expected to register only a modest 1.5% growth in 2023, in line with a weaker global growth outlook, especially for Malaysia's key trade partners among advanced economies, according to Bank Negara Malaysia (BNM).

Gross exports grew 26.1% in 2021 and 25% in 2022. The average growth for 2015-2019 was 5.6%.

"Risks to export growth are tilted to the downside, stemming mainly from slower-than-anticipated external demand and further escalation of geopolitical tensions. Nevertheless, there are upside risks to export growth. These include a faster recovery in China, which would provide support to global trade activity," said BNM in its Economic and Monetary Review 2022 report published on Wednesday (March 29).

Manufactured exports, which contributed 84% of Malaysia’s total exports, are projected to expand at a significantly slower pace of 2.7% in 2023, compared with 22.3% in 2022. The slowdown is due to broad-based moderation across the electrical and electronics (E&E) and non-E&E segments, BNM said.

Particularly for the E&E segment, BNM noted that World Semiconductor Trade Statistics in November last year projected a decline of 4.1% in global semiconductor sales in 2023 (2011-2019 average: 4.1%), as slowing demand for consumer electronics is expected to weigh on global semiconductor sales.

“This is corroborated by insights from the bank’s regional economic surveillance, which indicated that some E&E firms had started to experience lower order volumes,” the report stated.  

"However, greater adoption of automation and digitalisation globally will continue to provide some underlying support to exports in 2023," it added.

Slower external demand would also weigh on exports of non-E&E manufacturing segments. "Nevertheless, this would be partially cushioned by the ramp-up of production of a major oil refinery in Johor," BNM said.

Commodity exports, meanwhile, are projected to decline by 5% in 2023, against a 41.7% growth in 2022, dragged mainly by lower commodity prices. Crude palm oil prices, said BNM, are expected to ease after hitting record highs last year, which will weigh on agricultural exports.

"This more than offset the improvement in oil palm output following receding labour shortages. Similarly, lower mineral prices, in tandem with the slowdown in global oil demand, would weigh on mineral export growth in 2023," it said.

Meanwhile, gross import growth is projected to slow to just 1.1% in 2023, compared with 31.3% in 2022, due to a “more moderate increase” in domestic demand, slower manufactured export growth, and a reduction in inventory build-ups, as global supply chain disruptions ease further.

Intermediate imports are expected to record a smaller growth of 0.2% in 2023, from 29.2% in 2022, following slower inventory build-ups amid easing supply chain disruptions.

"Continued expansion in domestic demand, albeit at a more moderate pace, would provide support to import growth for consumption and capital goods," BNM said.

For 2023, import growth for consumption goods is projected at 1.8%, compared with 24% a year ago (2015-2019 average: 8.4%), while import growth for capital goods will likely moderate to 1.6%, from 15.8% previously.

With the significant decline in export and import growth, BNM expects the current account of the balance of payments to register a continued surplus of 2.5% to 3.5% of gross domestic product (GDP) in 2023, not that far off from its 2022 surplus of 2.6% of GDP.

This is driven by the continued goods surplus and lower deficit in the services account, BNM said.

“The goods account is expected to remain in surplus, as moderation in export growth is offset by slower import growth,” it said.  

The services account is also projected to register a smaller deficit, reflecting further recovery in the travel account.

"Of significance, the travel account is expected to turn around into a surplus position this year, after recording a deficit for three consecutive years. This is in tandem with the continued recovery in tourist arrivals towards the pre-pandemic level," it said, adding the reopening of China’s international borders is also expected to provide further impetus to inbound tourist arrivals and expenditure.

"Nevertheless, the overall services account would remain in deficit. This reflects continued reliance on foreign services, particularly in the transportation segment," it said.

As for the primary income account, that is also projected to remain in deficit, mainly due to continued income payment accrued to foreign investors in Malaysia. "The secondary income account is expected to register a larger deficit, driven by higher outward remittances by foreign workers," it added. 

https://www.theedgemarkets.com/node/661220