Slower export growth expected ahead as base effect dissipate in September, say economists


KUALA LUMPUR: Malaysia’s total export rose 30.1% year-on-year (y-o-y) in September to RM144.31 billion, supported by external demand for electrical and electronics (E&E) and oil and gas products.

However, the figure was below Bloomberg consensus forecast of 31.5% and also below the 31.2% growth expected by economists polled by Reuters. It was also lower than the export growth achieved in August of 48.2%.

Imports increased by 33% to RM112.6 billion, but was more than halved from 67.3% in August.

Malaysia’s total trade rose 31.4% y-o-y to RM256.91 billion in September, but contracted 3.2% month-on-month (m-o-m), while the trade surplus hit a new record high, rising 20.9% to RM31.71 billion (also up 86.1% m-o-m).

UOB Global Economics and Market Research has maintained its export growth forecast of 26% for 2022, given that exports have averaged 30.3% year-to-date as of September, as well as the fact that risk to the trade outlook continues to tilt towards the downside.

UOB also left its forecast for 2023 at 1.5%, below the Ministry of Finance (MOF)’s estimate of 2.2%.

UOB Global senior economist Julia Goh and economist Loke Siew Ting said a weaker growth outlook for China — Malaysia’s top trading partner — due to its dynamic Covid-19 policies and property woes, will eventually take a toll on regional economies’ merchandise trade performance, including Malaysia’s.

“This is in addition to an anaemic growth outlook projected for the US and EU, as we head into 2023. Hence, rising global recession risk and global tech down cycle are key deterrents to trade growth momentum, while statistical base and commodity price effects are wildcards for the outlook going into 2023,” they wrote in a note on Wednesday (Oct 19).

Nonetheless, wider preferential market access for Malaysian exporters and a cross-country initiative to strengthen the resilience of the semiconductor supply chain are expected to provide some support to Malaysian trade growth momentum going forward, said the economists.

“The ratified Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP) will enter into force for Malaysia on Nov 29. It follows the Regional Comprehensive Economic Partnership Agreement (RCEP), which came into force for Malaysia in March, and a memorandum of cooperation signed between the US and Malaysia in May to strengthen the resilience of the semiconductor supply chain between the two countries,” added the economists.

MIDF Research also believes that weaker final demand due to rising inflation and borrowing costs will hurt Malaysia’s trade prospects.

Despite this, the research house raised its forecast for export and import growth to 26% and 30.5%, respectively.

“Based on the latest data, external demand remained robust despite concerns over slowing global growth. We expect more moderate growth rates for both exports and imports in the final few months of 2022, as the low-base effect diminishes.

“Trade sector stands to benefit from elevated commodity prices, growing external demand for E&E and commodities (i.e. petroleum and palm oil), and continued rise in global production and international trade activities. Imports would expand further on the back of growing domestic demand, and increased business activities and consumer spending,” it added.

Similarly, RHB Investment Bank Research remains cautious about the outlook for trade over the next three- to six months, and believes that the impact of tightening financial conditions, in tandem with the normalisation of monetary policy, is likely to impact the global economy by year-end and pose further downside risks to global economic activity.

The research house expects momentum of commodity related exports such as petroleum and palm oil-based products to moderate in the coming months, in line with softer global demand and commodity prices.

Nonetheless, the research house has maintained their full-year exports projection to 27.9% y-o-y, amid slower growth momentum in the fourth quarter of this year.

“We expect the y-o-y growth to slow in upcoming months, as the base effect has started to dissipate by September,” they said.

Source : The Edge Markets


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