Analysts reckon that manufacturing exports will lift the trade figures going into 2024.
PETALING JAYA: The rebound in demand for tech products could help Malaysia’s trade grow in 2024, but risks of an economic slowdown in the United States and China could result in the demand to become uneven, according to economists.
The Statistics Department yesterday revealed Malaysia’s exports fell some 5.9% year-on-year (y-o-y) or RM7.6bil to RM122.1bil for November 2023, while imports increased by 1.7% y-o-y or RM1.8bil to RM109.7bil.
Exports in October stood at RM126.2bil and imports at RM113bil.
Nevertheless, analysts think manufacturing exports, especially the electrical and electronic (E&E) products, which account for about 80% of Malaysia’s exports, will lift trade figures going into 2024, underpinned by the demand for semiconductors.
iFAST Capital expects global chip sales to grow rapidly in the next two years owing to the structural increase in demand from increasing digitalisation.
“We expect an 8% y-o-y growth in semiconductor exports in the first quarter of 2024 (1Q24).
“We anticipate that excessive adjustments to production levels will contribute to higher sales numbers in the future as chipmakers are currently underestimating the long-term impact artificial intelligence will have on chip demand.
In addition, the positive influence of base effects and the massive incentives provided by governments globally would drive higher semiconductor sales growth moving forward. This could potentially buoy chip sales,” said its research analyst Kevin Khaw.As an active player in the downstream part of the global semiconductor supply chain, Malaysia is poised to benefit from the industry’s rebound, he added.
Recent announcements of investment by multiple semiconductor giants such as Intel, Infineon, Texas Instruments and Nvidia indicate Malaysia’s strategic positioning to scale in the world semiconductor growth and benefits from the China and United States plus one reshoring activities.
Khaw is expecting the New Industrial Master Plan 2030 to serve as a blueprint for Malaysia’s semiconductor roadmap in the next seven years.
This could buoy both exports and imports in the semiconductor space (approximately 14% y-o-y growth in 2Q25) while maintaining a 2% y-o-y growth in terms of exports and imports in the next two years, he added.
That said, given the continuing weak trade numbers in November, Malaysia’s gross exports and imports are estimated to have declined by 7.6% and 6.2% in 2023, marginally better than the Finance Ministry’s projections (gross exports: minus 7.8%, gross imports: minus 6.8%) contained in its 2024 Economic Outlook report.
The main cause is the slowdown in the global economy from 3.5% in 2022 to 3% in 2023 estimated by the International Monetary Fund (IMF).
Given that world economic growth in 2024 is forecast to remain at about the same level as 2023, the pick-up in global trade from around 1% in 2023 to 3.5% in 2024 projected by the IMF may be more muted, said Sunway University professor of Economics Dr Yeah Kim Leng.
“Consequently, the around 5% rise in Malaysia’s gross exports and imports expected by the Ministry of Finance may be a tad optimistic unless the Chinese economy, Malaysia’s largest trading partner, picks up steam in 2024,” he told StarBiz.
He added the more moderate growth among Asian economies led by China and India, and possibly Japan could provide the impetus for increased regional trade volume next year as stocks diminishes and supply chains stabilise.
In short, due to low base effects and moderate rise in external demand, Malaysia’s trade performance is forecast to grow by 3% to 5% in 2024.
Yeah believes that the more positive outlook for the E&E sector will underpin the likelihood that Malaysia’s gross domestic product growth in 2024 will exceed this year’s growth estimated at 4% to 4.2% (actual 3.9% in the first three quarters).
Malaysia’s merchandise trade expanded over 20% over two consecutive years in 2021 and 2022 before the cyclical decline in 2023.
Both exports and imports are forecast to expand moderately by 3% to 5% in 2023 due to restocking and supply chain normalisation amidst soft global growth.
Yeah pointed out the anticipated strengthening of investment activities are also expected to lead to improved trade in intermediate and capital goods in 2024.
Japanese investment bank Nomura in a recent report, noted it expects the tech-led tailwind to augment export growth in the 1H24 for Asia, followed by softer momentum in the second half, when it expects a mild US recession to unfold.
Overall, the bank is fairly optimistic that export growth in 2024 should be better than in 2023, given the starting point.
The positive tailwinds for the global economy are visible in the economic indicators.
Nomura’s leading index of Asia ex-Japan’s aggregate exports, or Neli for short, which has a three-month lead time, rose for a third consecutive month to 88.4 last month, signalling positive growth momentum ahead underpinned by an upswing in the global tech cycle.
It pointed out that South Korea’s semiconductor exports rebounded into positive territory in November (plus 10.8% y-o-y) for the first time in 15 months, but warned not to get too optimistic of the momentum going forward.
“Despite rising for the third time in a row, Neli’s latest reading remains quite low, suggesting that, on aggregate, Asia’s export growth could remain below trend over the next few months, especially considering the risk of another economic dip in China,” it stated.
Policy action may already be in the works for the ailing Chinese economy.
The move by large state-owned banks in China to cut their deposit rates by 10 to 30 basis points recently lays the groundwork for the People’s Bank of China (PBoC) to cut its policy lending rates in January as Beijing becomes increasingly concerned about the downward pressure on economic growth, Nomura said, lending support to its view of another growth dip there.
The lasting disinflationary pressures and a sharp pivot by the Federal Reserve on rates there have lowered the hurdle for the PBoC to cut rates, it added.
Khaw of iFAST also thinks high priced exports of commodities such as crude palm oil and crude oil will lead to an increase in export earnings in 2024, and positively impact the ringgit exchange rate, notwithstanding the potential investment inflows into the capital market of these sectors, which will also boost demand for the local unit.
