PETALING JAYA: Economists are generally positive about Malaysia’s trade growth in 2024, as the country had registered a commendable export growth and widening trade surplus compared to the year before.
The Statistics Department published Malaysia’s trade data for the final quarter and whole of 2024 yesterday, reporting that total trade for the year had grown approximately 11.5% year-on-year (y-o-y) to RM2.9 trillion, driven by a 16.9% increase in exports to RM138.5bil, while imports also extended 11.9% to RM119.3bil.
This was underpinned by a surge in the trade surplus by 62.3% y-o-y to RM19.2bil by December, which itself was the 56th consecutive month of surplus since May 2020.
Seasoned economist and chief executive at the Center for Market Education Carmelo Ferlito for one believes that the latest trade numbers are good and a sign of the positive momentum of the Malaysia economy, while also holding the idea that the relative stabilisation of the ringgit could have played a role in the encouraging trend.
On the other hand, he is of the opinion that a disaggregate analysis, the separate studying of all the respective variables in the trend, may be necessary to understand the general implication of the improving trade surplus on the country’s economy.
There will be different factors that will play a role this year (in shaping Malaysia’s economic trajectory), including US trade policy, the potential debt crisis bursting in China, where the contradiction of a centrally planned development is emerging strongly, and the potential of a Malaysia-European Union free trade agreement (FTA),” he said.
The Statistics Department itself pointed out that Malaysia’s trade performance last year had set a solid platform for continued growth and new opportunities this year.
It added that compared with November, December had seen exports, imports, total trade and trade surplus improve by 9.7%, 7.3%, 8.5% and 27.4% respectively.
Of note, chief statistician Datuk Seri Dr Mohd Uzir Mahidin revealed that Singapore has purchased RM6.9bil worth of Malaysian goods in 2024, making it the top country Malaysian products were sold to, followed by the US at RM4.3bil, Hong Kong at RM2.5bil and China at RM1.7bil.
Unsurprisingly, China remains the largest contributor of imported products to Malaysia last year, valued at RM4.2bil, to again be followed by the US at RM3.5bil, Taiwan at RM2.6bil and the European Union at RM1.9bil.
In terms of products, exports of electrical and electronic goods expanded by 12.8% y-o-y to RM58.75bil in 2024, as the export of palm oil and palm-based agriculture products also grew by RM1.9bil, or 31.1% y-o-y, to RM8.2bil.
Asia Pacific economist at credit insurer Coface Nouri Chatillon views the improvement as an avenue towards lower inflation and unemployment and a stronger ringgit, despite acknowledging the near-term movement of the ringgit still largely hinges on the strength of the US dollar.
"That said, the tightening bias for Bank Negara in 2025 should shield the currency from excessive depreciation risk. From a long-term perspective, a sustained improvement in trade surplus may lead to structural appreciation for the currency, which could lead to lower import prices and reduce imported inflation.
"It could lead to increased production capacity to meet the growing external demand, leading to economies of scale that reduce production costs. Consequently, price increases by businesses won’t be necessary to maintain profitability," he told StarBiz.
Moreover, he opined that if the improvement in trade surplus is sustained, it could lead to job creation underpinning increased production, particularly in manufacturing and export-oriented sectors.
Explaining further, Chatillon sees the recovery of the global technology cycle and substantial government subsidies for semiconductors as factors that should continue to support Malaysia's exports, but there are substantial risks to consider for external trade, including the possibility of heavy tariffs being imposed on China under Trump 2.0, which could push Chinese exporters to find other markets in the US.
He added: "The situation could potentially worsen Malaysia's trade balance due to stiffer competition from Chinese products outside of the US, which could be particularly worrying given China's overcapacity and weak private demand due to property market turmoil.
"This risk could be mitigated by China's consumption-focused stimulus, as it could help absorb some of the overproduction. For the time being, its size is still modest, but some top Chinese policymakers have hinted at more generous stimulus measures."
Meanwhile, assistant research manager and economist at Ideas Malaysia Doris Liew pointed out that the December surge in export numbers was likely due to the frontloading of semiconductor orders ahead of the inauguration of President Donald Trump on Monday.
“Anticipating potential trade policy shifts and export restrictions under the new administration, global importers accelerated their shipments to secure contracts and maintain supply chain continuity, which benefitted Malaysia’s semiconductor industry.
“This is evident by the increase in the electrical and electronics industry, which experienced 27.8% export growth. This growth is fueled by the combined effects of frontloading and the ongoing recovery in the semiconductor sector.”
The flipside to that, she said, is that the frontloading effect and economic recovery momentum are a short term boost that is likely to taper off by early 2025.
Liew projected that once the immediate pressures and uncertainties surrounding the Trump presidency is mitigated, the spike in exports driven by frontloading is unlikely to be sustained, leading to a natural tapering off of this growth boost.
Furthermore, she expects export momentum to also experience headwinds in the face of US chip restriction, which places Malaysia on its tier-two list, noting that this means that companies will face increased restrictions in exporting advanced computer chips and artificial intelligence computing capacity.
“While the immediate impact on Malaysia’s existing semiconductor ecosystem is not clear at this juncture, two outcomes appear certain. One, Malaysia’s ambition to develop higher value manufacturing will become more challenging.
“Two, semiconductor companies and their associating supporting industries will tread more cautiously in their operations in the countries outside of tier-one status. This may have implications for their expansion plans, which will directly impact Malaysia,” said Liew.
