RHB Research raises Malaysia’s export growth forecast to 6%

Port of Tanjung Pelepas (PTP) in Gelang Patah, Johor.

KUALA LUMPUR: RHB Research Institute has revised upward Malaysia’s export growth forecast to 6% this year from an earlier expectation of 2%.

In a research note on Monday, it said the more bullish forecast is on account of the recovery in demand for commodity products, aided by higher prices and pick-up in global semi-conductor sales in late-2016, translating into higher electrical and electronics (E & E) exports.

It said the projection also included an expectation of improving global trade outlook by between 1.8% and 3.1% this year, from two consecutive contractions of 2.7% last year and 11.8% in 2015, as global growth prospects improve.

“Given the stronger trade outlook, the current account surplus is also expected to widen to RM33.7bil or 2.7% of gross domestic product (GDP). This is after it registered a larger-than-expected surplus of 2% of GDP last year,” it said.

RHB Research said oil prices had since rebounded in recent months to above the US$50 per barrel level on the back of a production cut agreement between the Organisation of Petroleum Exporting Countries (Opec) and some non-Opec members.

“Our in-house oil and gas analyst has an average crude oil price projection of US$60 per barrel for 2017, representing an upside of 33% from the 2016 average of US$45 per barrel,” it added.

It said this was estimated to boost oil and liquefied natural gas (LNG) exports for the year to double-digit growth rates of about 26% and 25% respectively.

“It is expected to add about a 0.9 and 1.2 percentage points respectively to overall export growth,” it said.

Meanwhile, RHB Research said crude palm oil (CPO) prices had also crept up last year on account of tight supply on weaker production due to the El Nino earlier in the year.

“Indeed, CPO prices increased by 34.2% to a year-end 2016 level of RM3,218 per tonne, after rising 4.7% in 2015,” it said.

Nevertheless, it said CPO prices were expected to average at around RM2,500 per tonne this year, a 6.6% decline from the 2016 average price of RM2,677 per tonne, as production begins to recover more significantly and soybean from South America starts being harvested.

“This would likely be mitigated by an expected increase in palm oil production by 12%-13% during the year, to pose an overall net neutral impact on total exports, in our opinion,” it said.

RHB Research also said given an improved commodity price outlook, as well as stronger global growth and demand, commodity exports, which contributed about 12% of total exports, were expected to rebound to a growth of about 14.4% this year, after recording back-to-back declines of 20.5% in 2015 and 13.6% last year.

“This is expected to contribute about 1.9 percentage points to overall export growth for 2017,” it added.

On E & E, RHB Research said the Semiconductor Industry Association (SIA) expected the industry to grow by 3%-3.5% globally this year, picking up from 1.5% last year, and on the back of stronger demand from the United States (US), Japan and the Asia-Pacific.

It said this was projected to translate into a 5% growth in Malaysia’s E & E exports this year, picking up from 3.5% growth last year.

“As E & E exports account for almost 37% of Malaysia’s total exports, the sector is poised to continue being the main driver for the country’s exports, on the back of a recovery in global semiconductor outlook.

“This is expected to contribute 1.8 percentage points to overall exports growth in 2017,” it added.

However, RHB Research said rising protectionism and anti-trade rhetoric in the US could still throw a spanner in the works and derail projections as it accounted for 10.2% of Malaysia’s total exports and 11 per cent of foreign direct investments in the country.

“It remains quite uncertain at this moment as to how US President Donald Trump’s trade policies would eventually pan out, as he has been pushing to implement some of the policies he promised during his elections campaign,” it said.

It said a trade war between the US and China would also cause Malaysia’s GDP growth to slow significantly as the country has traditionally operated as a small and open economy with a 127% share of trade to GDP.

“In our estimate, a 1% fall in global merchandise trade would affect Malaysia’s exports by 1.08% and GDP growth by 0.13%,” RHB added. -- Bernama