Thailand
Economists expect Malaysia’s trade performance to slow
PETALING JAYA: Malaysia’s trade performance is expected to slow down in the year ahead amid rising headwinds in the global economy.
According to economists, with recession risks looming in developed economies such as the United States and European Union (EU), and China’s economy moderating, global demand for goods and services is expected to decline in 2023, and this could weigh on Malaysia’s export growth.
This means the stronger pace of export growth seen in November as compared with the number posted in October will unlikely be sustainable in the near term.
As it stands, the World Trade Organisation Goods Trade Barometer index had already sunk to below-trend growth at 96.2 in its November release, down from the previous reading of 100, which is a baseline that indicates trade expansion in near future.
The decline was led by negative readings of export orders, air freights and electronic components.
The reading suggested that trade growth was likely to slow moving into 2023, amid ebbing business sentiment and weaker global import demand, Hong Leong Investment Bank Research noted.
“In line with this, Malaysia’s positive trade performance is also expected to moderate in coming months, constrained by the weaker external environment,” the brokerage said in a report yesterday.
Export growth last month accelerated to 15.6% year-on-year (y-o-y), underpinned by increases in shipments of electrical and electronics (E&E) and petroleum products, from 14.9% y-o-y in October.
Import growth, on the other hand, continued to moderate to 15.6% y-o-y from 29.1% y-o-y in October.
On a monthly basis, November exports declined 1%, following a contraction of 8.8% in October, while imports fell 4.9% in November after a 1% increase in October.
The country registered a wider trade surplus of RM22.3bil last month, as compared with RM18.1bil in October.
CGS-CIMB Research projected overall export growth in 2023 to moderate to 5.8% y-o-y from the expected 13.5% this year due to a potential slowdown in China and recession in the United States and EU.
It maintained its expectation of a moderating Malaysia gross domestic product (GDP) of 4.4% for 2023 from 8.4% this year.
The brokerage said the scaling back of international sales volumes and new export orders are expected to limit manufacturing export growth in the near term.
“Recent contraction in China’s trade and manufacturing activity will also further exacerbate global trade demand fragility, risking Malaysia’s exports to China, which accounts for roughly around 15% of Malaysia’s total exports,” CGS-CIMB said.
It added that global semiconductor sales were also on a downtrend, further hinting at softening electrical and electronics (E&E) exports.
Meanwhile, commitment by the Organisation of Petroleum Exporting Countries and its allies to lower oil production could lead to a potential 5% decline in Malaysia’s oil and gas shipments.
“Given the significant risks to the global economy, including a soft landing in the US economy and Europe, strong inflation pressures, continued military conflicts in Russia and Ukraine, and higher US interest rate-induced negative spillover disruption effects on the domestic economy, we caution that growth risks in 2023 are skewed to the downside,” TA Research said.
“While the weakening demand arising from these two regions (a combination of 16.9% of total trade) may affect the trade performance in Malaysia, we may see some positive effects following China’s reopening that could act as a potential boost for Malaysia’s trade performance in 2023,” it added.
AmBank Research said economic slowdown from major trading partners, including the United States, the EU and China is imminent.
It expected 2023 export growth to moderate to 6% y-o-y from the estimated 25.5%-26.5% y-o-y for this year, in part due to the high base-effect in 2022.
“We expect the E&E sector to continue supporting export growth next year, particularly those related to new energy and electrical vehicle production,” AmBank Research said, adding that local companies this year had expanded production capacity to meet external demand.
According to Public Investment Bank Research (PIVB), the country’s export growth could slow to 3.3% y-o-y in 2023 from the predicted 11.4% y-o-y this year, while import growth could reach 4.8% y-o-y from the 15.5% y-o-y this year.
“Given Malaysia’s high total trade value as a percentage of GDP and high export propensity (ratio of exports to GDP), the anticipated slower growth in the global economic development and semiconductor demand will probably drag Malaysia’s economy in 2023,” PIVB said.
Its GDP growth estimate stood at 3.8% in 2023, as compared to 8% for 2022.
Source: https://www.thestar.com.my/business/business-news/2022/12/21/economists-expect-malaysias-trade-performance-to-slow