Malaysia: Little to rejoice on the global trade front

• Apr 25, 2023

PETALING JAYA: The weakening global economy foretells weaker trade prospects for Malaysian companies and products and services in the months ahead.

While China’s economic reopening is expected to provide some support to the global growth outlook and Malaysian exports, the high inflation and interest rate environment in major economies, where much of the final demand comes from, appears to indicate overall softening ahead, economists said.

“Despite China’s reopening and a positive surprise in its first-quarter gross domestic product (GDP) growth, we believe there is little to rejoice on the global trade front.

“The Caixin China purchasing managers’ index was neutral at 50 in March, down from 51.6 in February, with the deterioration in the index for business conditions stemming from weaker global demand.

“Further, we have yet to see signs of a turnaround in the electrical and electronics (E&E) industry downcycle,” CGS-CIMB Research said in a report yesterday.

The impact is already visible in Malaysia’s total trade numbers which declined by 1.6% year-on-year (y-o-y) in March 2023 to RM232.7bil, as exports fell by 1.4% y-o-y to RM129.7bil (February 2023: 9.8% y-o-y), the first time since August 2020.

Imports contracted by 1.8% y-o-y to RM103bil (February 2023: 12.4% y-o-y).

Exports fell to major trading markets, especially exports of manufactured products such as E&E products, while imports fell due to lower buying of intermediate goods such as primary fuels and lubricants, data showed.

The end of China’s zero-Covid policy early this year saw shipments to China, which accounts for around 13% of overall exports, improving by 16.2% month-on-month in March after declining since December last year.

While that was a bright spot, research houses remain cautious about the prospects for trade.

“Risks to exports growth remain tilted to the downside, stemming from weaker-than-expected external demand and further escalation of geopolitical tensions. We maintain our 2023 GDP forecast at 4% y-o-y,” Hong Leong Investment Bank Research said.

CGS-CIMB Research maintained its forecast of GDP growth of 4.4% for the Malaysian economy in 2023.

Due to pessimism in the global economy, AmBank Research expects growth in the economy to be supported by domestic factors including an improving labour market, investment realisation and improvement in the construction and the agriculture sectors for this year. It has a 4.5% growth forecast for the country in 2023.

Source: https://www.thestar.com.my/business/business-news/2023/04/25/little-to-rejoice-on-the-global-trade-front