PETALING JAYA: Malaysia’s export performance is likely to come under pressure in the near term due to the recent appreciation of the ringgit.
In addition, the country’s shipments could also be weighed down by a weaker US economy and China’s sluggish recovery.
Amid these challenges, Kenanga Research has revised down its 2024 export growth forecast to 4.9% year-on-year (y-o-y) from the previous 7.3% y-o-y.
In 2023, Malaysia’s shipments declined 8% y-o-y.
The brokerage noted that for the first nine months of 2024, export growth stood at 5.2% y-o-y, down from 5.9% y-o-y in the first eight months of the year.
This falls short of its earlier target, after September shipments fell 0.3%, as compared to a growth of 12% in August.
“Strong growth momentum is needed in the remaining months to meet the previous growth target, but we expect this to be challenging.
“The sharp appreciation of the ringgit against the US dollar and softer US demand, driven by delayed effects of tighter monetary policy, led us to revise our forecast,” Kenanga Research explained in its report yesterday.
“So far, strong US demand has offset the decline in China’s imports.
“Year-to-date, exports to the United States rose 17.6% y-o-y, while exports to China fell 2.1% y-o-y.
“A significant weakening in the US economy, combined with the ringgit’s steady appreciation, will likely hurt trade performance,” it added.
Similarly, TA Research said Malaysia’s export performance could be impacted by the resurgence of the ringgit, as seen in September when the currency strengthened by 4.9% month-on-month to reach RM4.12 against the US dollar.
“A stronger ringgit makes Malaysian goods more expensive for foreign buyers, reducing the price competitiveness of exports in global markets,” the research house explained.
“This can weigh on demand for Malaysian products, particularly in price-sensitive sectors such as electronics, palm oil and manufactured goods.”
TA Research stated that despite lingering uncertainty from China’s sluggish recovery, particularly with third-quarter economic growth falling short of expectations, it remained optimistic about an eventual rebound in demand from this crucial market.
“Moreover, Malaysia has seen a notable increase in the import of intermediate goods from December 2023 to September 2024.
“This trend suggests that exports may rise soon, as intermediate goods are crucial for manufacturing final products,” it said.
“The increase in these imports indicates that Malaysian manufacturers are ramping up production to meet higher demand for finished goods both domestically and internationally,” it added.
Citing the government’s revelation, TA Research noted that changes in the exports of manufactured goods have a greater impact on net exports and gross domestic product (GDP) compared with exports from the mining and agriculture sectors.
“A one percentage point (ppt) increase in manufactured goods exports leads to a 0.854 ppt rise in net exports and a 0.586 ppt increase in GDP.
“In contrast, while exports of mining and agricultural goods show similar trends, their effects on net exports and GDP are more subdued,” it said.
Kenanga Research said despite weak September performance, it maintained its 3Q24 GDP growth forecast at 5.3%, supported by resilient domestic demand.
It also maintained its overall 2024 GDP growth forecast at 5%, as compared to a growth of 3.6% in 2023.
Hong Leong Investment Bank (HLIB) Research noted that while the World Trade Organisation had raised its projection for 2024 global goods trade growth to 2.7% from the previous 2.6%, increasing geopolitical tensions and uncertainty over economic policy could pose substantial downside risks to this forecast.
“Given the vulnerable outlook, Malaysia’s trade performance is also expected to remain modest in coming months, nevertheless, still supported by its diversified export structure,” the research house said.
As such, HLIB Research maintained it 2024 GDP forecast at 5%.
Meanwhile, CGS International Research said despite the weak export performance last month, it remained optimistic that shipments would rise for the remainder of the year.
The brokerage pointed to the positive trend of manufactured goods such as electrical and electronics and machinery products, as well as improving global semiconductor sales, as indications of positive trade growth, among other things.
“Nonetheless, we acknowledge the potential risk of trade disruptions due to the recent geopolitical tension between Israel, Lebanon and Iran.
“The disruption of Middle Eastern energy supplies could drive crude oil prices upwards, thus dampening global demand,” it said.
“In addition, potential trade disputes globally with a change in US administration after its presidential elections in November 2024 may restrict the extent of the global trade recovery,” it noted.
