Socio-Economic Research Centre's Lee said the weak export growth reflected the uneven external demand.
PETALING JAYA: While there are challenges, particularly with the declining trade surplus and uneven external demand, economists say there are opportunities for exports to grow if effective measures are implemented.
Enhancing sectoral performance, expanding into new markets, capitalising on high-growth areas such as electrical and electronics (E&E), agriculture and halal products are crucial to maintain a positive trade balance, said the economists.
Despite an overall increase in total trade by 8.7% to RM1.4 trillion for the first half of 2024 (1H24), trade balance has declined by 43.9% from RM119.2bil in 1H23 to RM66.12bil, according to an Investment, Trade and Industry Ministry (Miti) statement yesterday.
It was largely attributed to imports growing about three times faster than exports leading to concerns about the contribution of net trade to gross domestic product (GDP) and its impact on the overall economic growth this year.
In 1H24, the country saw its exports rise by 4% to RM731.1bil compared with 1H23, while imports surged by almost 14% to RM665bil.
Socio-Economic Research Centre executive director Lee Heng Guie said the weak export growth reflected the uneven external demand. However, he remained optimistic, maintaining an export growth estimate of 4% for 2024, driven by expectations of firmer E&E exports in the 2H24 in tandem with the global tech upturn.
Higher commodity prices and crude oil exports are also expected to contribute positively.
“Looking ahead, we are still mindful of the trade tariffs war by the United States against China which could disrupt global trade if it escalates into a full-blown trade war,” he added.
Meanwhile, economist Geoffrey Williams pointed out that the declining trade balance is a significant concern, as the contribution of net trade to GDP is falling, which will hold back overall GDP growth in 2024.
He noted that the trend had been evident since August last year, with the trade surplus falling year-on-year (y-o-y).
“The global economy this year is expected to grow around 3.1%, the same as last year. Next year, it is projected to grow around 3.2%, so there is no significant uptick in growth now and very little foreseen for next year,” he explained.
“Against this background, there is very little that can be done in the short term to address the trade surplus.”
Despite the challenges, UCSI University Malaysia associate professor of finance Liew Chee Yoong suggested several measures to stabilise and improve Malaysia’s trade surplus.
He emphasised on the importance of investing in innovation as well as research and development to enhance the quality and variety of export products.
“Expanding into new markets is crucial to reduce reliance on traditional ones and mitigate risks associated with market fluctuations,” Liew, who is also a research fellow at the Centre for Market Education, noted.
He also highlighted the need for negotiating favourable trade agreements to lower tariffs and increase market access for Malaysian products.
Additionally, Liew advocated providing financial and technical support to small and medium enterprises (SMEs) to enhance their export capabilities.
Another key strategy he said was shifting the focus from raw materials to higher value-added products, which would increase export revenues.
Williams, on the other hand, pointed out that while cutting excise duties and taxes on Malaysian exporters can help, ultimately it is overseas demand that drives exports.
On the outlook for trade figures for 2H24, Williams said there was no particular reason to expect the trade balance to improve unless the was an increase in exports.
“This depends on growth in Malaysia’s export markets, which is outside the control of policymakers unless new trade deals can be expedited,” he said.
Liew, meanwhile, acknowledged that the trade balance may continue to face pressure due to the significant increase in imports.
However, with effective implementation of export-boosting measures, he said there could be stabilisation or slight improvement in the trade surplus.
“With sustained efforts to diversify export markets, enhance product quality, and negotiate favourable trade agreements, Malaysia could see a gradual improvement in its trade balance,” he said.
Liew also stressed the importance of enhancing export performance through specific sectoral improvements.
He highlighted the need to enhance manufacturing capabilities and innovation in the E&E sector which is a significant contributor to exports.
“Promoting agricultural exports by improving production techniques, capitalising on global demand for halal-certified products particularly in the food and cosmetics industries, leveraging technology to improve production efficiency and qualitare vital steps,” he added.
In June, the country recorded another month of increased trade, with a 8.7% y-o-y expansion to RM237.81bil, according to Miti.
It said the country’s exports grew 1.7% to RM126.05mil during the month while imports jumped 17.8% to RM111.76bil for a trade surplus of RM14.29bil.
The ministry also said export growth was contributed mainly by higher demand for machinery, equipment and parts, liquefied natural gas as well as palm oil based manufactured products.
In a separate statement, chief statistician Datuk Mohd Uzir Mahidin said domestic exports, which contributed 79.7% to total exports, saw a 7.1% increase to RM100.4bil in June 2024.
On the other hand, re-exports were down by 15.1% as compared to June 2023, at RM25.6bil, contributing 20.3% to total exports.
Export expansion was to major trading partners notably Asean, the United States and Taiwan.
Exports to the United States and Taiwan grew significantly.
While the trade surplus decreased by 50.8% y-o-y to RM14.3bil, Mohd Uzir noted that this was the 50th consecutive month of surplus since May 2020.
