Container ships sit docked next to gantry cranes at Port Klang in this aerial photograph taken over Klang district, Selangor, Malaysia, on Saturday, Jan. 9, 2016. Photographer Sanjit Das/Bloomberg
PETALING JAYA: Despite the year-on-year (y-o-y) plunge in Malaysia’s trade balance to RM10.9bil for February, representing a 44.4% decline, economists remain optimistic about the country’s external sector.
According to the Statistics Department, the country’s trade balance, which is Malaysia’s net sum of its export and import of goods, declined as exports dipped by 0.8% or RM939.5mil, while imports went up a more significant 8.4% to RM100.5bil.
This comes as total trade increased 3.3% y-o-y to RM211.8bil in February, from RM205bil recorded in the same corresponding period of 2023.
HSBC Asean economist Yun Liu acknowledged that the latest February data had been somewhat disappointing, defying market expectation for a sustained growth in exports.
On the brighter side, however, she said Malaysia is not the only country delivering discouraging trade numbers.
“Singapore also saw a similar trend of February blues. Arguably, one could easily think it was due to the Lunar New Year distortions. But base effects were not the entire reason for the pull-back,” she told StarBiz.
She explained that notably, the country’s external sector has finally seen the turnaround in the trade cycle, although its recovery was milder than regional peers, as some of its Asean neighbours have largely benefited from an upturn in the technology cycle.
Furthermore, she said Malaysia’s trade recovery could also be attributed to a rebound in commodity shipments, while the country’s electronics shipments remained lacklustre.
“Unlike other Asian electronics producers, Malaysia has less direct exposure to AI (artificial intelligence)-related hardware or smartphone supply chains. The contribution of electronic shipments to headline export growth in January and February was even lower than that in 2023,” said Liu.
However, she believes a pick-up in the electronics cycle is likely a matter of time, and as such, Malaysia should remain a main beneficiary of the broader recovery in the tech cycle, even though there appears to be a delay in the transmission impact on its growth.
With the trade surplus having narrowed to only 1.2% of gross domestic product (GDP) in 2023, Liu is nonetheless anticipating an improvement to the country’s trade sector, leading to a firmer current account for the country.
“We expect Malaysia’s current account surplus to improve to 2.8% of GDP in 2024, amid better trade prospects. This could relieve some pressure on the ringgit, whose weakness recently garnered increased attention from policymakers,” she noted.
Meanwhile, economist at the Malaysia University of Science and Technology Prof Geoffrey Williams observed that total trade has been increasing steadily since the middle of 2020 during the lockdowns, as before that period it has been flattish, around RM150bil monthly.
Similarly, he said Malaysia’s trade balance has improved since the start of the lockdowns in 2020, and although the 2023 trade balance was lower than what was hoped for, it was still higher than during the pre-lockdown span from 2017.
Reflecting Liu’s sentiment, Williams commented: “The trend and underlying contribution remains positive.”
“Although the trade balance has been squeezed to around RM10.9bil in the last figures, it has been quite flat in the range RM10bil to RM13bil since September 2023 and the recent downtrend is mostly cyclical.”
Highlighting that the current account surplus was about the same as in the first quarter of the past two years (1Q22 and 1Q23), he stressed that there was weakness in 2Q23 and 3Q23 but the real squeeze was in the final three months of last year, especially in December 2023 when it contracted by 58% compared to December 2022.
Williams said while trade balance had contracted by 16.4% for the whole of 2023, it has remained positive and therefore is still contributing to GDP, before mentioning that it is too early at this juncture to see whether the trend will persist throughout the year.
“Of course this has an effect on all foreign transactions including foreign investments, investment flows and the exchange rate but it is cyclical and reflects external factors in export markets which are struggling, especially China, Japan and the United States, but also Asean markets which are affected by the global demand downturn too,” he said.
Concurrently, Statistics Department chief, Datuk Seri Dr Mohd Uzir Mahidin, reported that Malaysia’s export performance decreased in February 2024 was in line with the decline in re-exports, which are goods that are exported after having been imported into Malaysia.
“Re-exports amounted to RM19.8bil, dropping by 20.2% while domestic exports worth RM91.5bil, which contributed to 82.2% to total exports, rose by 4.7% y-o-y.”
Mohd Uzir further said the lower exports were attributable from the decrease mainly to Singapore, followed by Hong Kong, Thailand, South Korea and Brazil.
The lower export rate was in tandem with the decreased export of products in sectors such as in the electrical and electronic (E&E), petroleum, palm oil and palm-based agriculture, as well as chemical industries.
At the same time, he said higher imports were mainly contributed by goods coming in from Singapore, followed by the US, the United Arab Emirates, South Korea and the European Union, driven by a rise in imports for E&E products; machinery, equipment and parts; petroleum products as well as metal manufactured goods.
Economist for Asia Pacific at Coface, Nouri Chatillon, concurred with HSBC’s Liu that Malaysia’s primarily midstream and downstream role in the global electronics supply chain meant it has benefited less from the sector’s worldwide recovery.
He noted: “Upstream producers such as South Korea and Taiwan have already reaped the benefits from the recovery in the semiconductor cycle. In addition, Malaysia’s market share in the chip market is also increasingly threatened by Chinese chip manufacturers that are competing in similar fields along the supply chain.”
Interestingly, he told StarBiz that unless there is a broader goods demand recovery in main export markets such as China, and the strengthening of the ringgit to ease the burden on import prices, the trade balance is expected to continue deteriorating.
“But the anticipated decline in US Federal Reserve funds rates could offer first rays of hope for the Malaysian ringgit,” he added.
MUST’s Williams remains upbeat that there is little chance of Malaysia regressing into a trade deficit, reiterating that the country’s trade balance has only been negative in one month - April 2020 - because of the lockdowns.
“Apart from that anomaly it has been positive for 26 years. The current lower than normal trade balance is just cyclical and will rebound as global trade picks up,” he said, before remarking that the government should not interfere apart from reducing regulatory costs, restrictions on trade and red-tape,” he said.
