MALAYSIA’s export growth so far this year has been anything but stellar, with negative growth seen in five of the first nine months. The latest trade data for September showed exports slipping 6.8% year on year to RM77.7 billion, with total exports for the nine months dipping 1.1% y-o-y to RM728.5 billion.
Economists were not surprised. After all, they were already bracing for the worst given slowing global growth, largely created by the trade war between the US and China. And that is unlikely to go away anytime soon after US President Donald Trump signed legislation last week expressing US support for Hong Kong protesters — a move that threatens to complicate trade talks with China.
Economists surveyed by Bloom-berg expect Malaysia’s export numbers for October, due to be released this week, to continue their downward spiral, with contraction likely to range from 11% to 15% y-o-y.
Nevertheless, economists The Edge spoke to anticipate a more positive export story in 2020, although they do not expect the hit-the-ball-out-of-the-park growth seen last year when exports grew 6.7% to nearly hit the RM1 trillion mark.
Associated Chinese Chambers of Commerce and Industry of Malaysia’s Socio-Economic Research Centre executive director Lee Heng Guie sees exports growing 2% next year from an estimated contraction of 2.5% this year. He attributes this to challenging global growth, estimated at 3.2% in 2020, with continued slowing growth in major advanced economies and China, and lingering uncertainties about the progress of the different phases of the trade deal negotiations.
On a brighter note, Lee says global semiconductor sales are expected to recover, thanks to the deployment of 5G technology.
“While it is reckoned there was some trade diversion for some products such as plastics, tissue paper, fasteners, radio frequency chips and semiconductor test-equipment manufacturers, not all manufacturers .
“Overall, the net effect on Malaysia’s exports remains negative, as reflected by the 1.1% decline in exports in the first nine months of 2019. The trade conflict-induced global supply chain disruption damaged global trade and dampened business investment,” he says.
UOB Malaysia senior economist Julia Goh concurs. She expects exports to contract 1% this year and to grow by 2% to 3% in 2020.
“Exports are subject to further downside risks emanating from global trade tensions, policy uncertainty and geopolitical risks.
“Hence, domestic demand, especially private consumption, is expected to remain the key growth engine, backed by some budget measures unveiled for 2020, still favourable labour market conditions, manageable inflation expectations and accommodative monetary policy,” she says.
TA Securities head of research Kaladher Govindan says the firm’s trade forecast figures are much lower than those of the government’s.
“The high degree of openness, disruption to the global supply chain following the prolonged trade dispute between major economies (mainly the US and China), volatile global financial and commodities market, slowdown in electrical and electronics demand and geopolitical tensions, are anticipated to affect Malaysia’s growth momentum going forward.
“As such, our trade forecasts figures are much lower than the government’s target. For instance, we project real exports and imports to barely grow in 2020 compared with the 1.4% and 1.9% prediction respectively by the Ministry of Finance (MoF). A similar low growth forecast is expected on nominal figures next year,” he says.
It comes back to the trade war
Dr Yeah Kim Leng, professor of economics at Sunway University Business School, believes that if the US-China trade talks can conclude positively, global output and trade will stabilise and normalise gradually in 2020.
“If not, the 25% to 26% tariffs imposed on each other will bring trade between the two countries to a trickle, if not to a screeching halt. Certain Malaysian export segments in electronics, machinery and equipment, furniture and commodities will benefit from the limited trade diversion, but the volume will be insufficient to offset the overall drop in demand in US and China due to the high tariffs,” he says.
Yeah notes that selective industries and products are beneficiaries of the Sino-US trade conflict, as evidenced by Malaysia’s increase in the share of US imports while that of China declines. This is further affirmed by the increasing share of Malaysia’s exports to the US market as a proportion of its global exports for the first half of this year.
He adds that due to its diversified export structure, Malaysia’s export performance will be less affected than countries whose exports are more concentrated geographically or in a few products.
“A stronger push for increased intra-Asian trade, including through the Regional Comprehensive Economic Partnership agreement, and export promotion push to non-traditional markets in Africa, the Middle East and Latin America, could help to reduce the negative impact of slower demand in the world’s two largest economies should the tariff war escalates further, he says.
On commodity exports, Yeah is of the view that Malaysia could see higher exports of oil and gas as Petroliam Nasional Bhd’s newly completed integrated petrochemical processing complex ramps up production while the worldwide adoption of 5G and other digital technologies could sustain electronics exports.
Will exports play a supporting role for GDP growth in 2020?
Finance Minister Lim Guan Eng reiterated last week that the government will keep its gross domestic product growth target for this year at 4.7%, although the growth pace decelerated to 4.4% in the third quarter (3Q2019) — the slowest in a year.
In 2020, the Malaysian economy is targeted to grow 4.8%. Given that the growth in exports, a contributor to GDP growth, is expected to be muted, what then will be driving the economy?
“Overall, we see headline GDP growth close to 4.2%, and that it may be hard to reach the 4.8% the government has pencilled in for 2020. Given the likely lingering uncertainties, exports would most probably still play second fiddle to private consumption as a key mover of growth,” says OCBC Bank economist Wellian Wiranto.
“On the investments front, we have seen fairly strong foreign direct investment inflows, especially into the Penang tech cluster. That is encouraging, but we are slightly more concerned about domestic investment activities, with the Malaysian Institute of Economic Research’s business conditions survey dipping to a decade low.”
TA Securities’ Kaladher says major events taking place in the country next year, such as Visit Malaysia 2020, the Asia-Pacific Economic Cooperation Leaders’ Summit and World Congress on Information Technology 2020, are expected to spur consumer spending.
“The government has set a target of RM100 billion for tourist receipts involving 30 million tourist arrivals from RM84.1 billion; last year saw 25.8 million arrivals. Further supporting growth are various measures by the government to lift disposable income.”
Universiti Malaya’s Prof Datuk Dr Rajah Rasiah says that a sharp contraction of exports will result in a fall in GDP.
“It will take a long time domestic consumption can become the prime propellant of the country’s GDP growth. I do not see it happening in the foreseeable future as our domestic market is still small.
“We tried that through a knee-jerk reaction to substitute for a fall in export demand during the global financial crisis (2008-2009) by promoting domestic consumption through, inter alia, a reduction in interest rates. Such an action only exacerbated household debt without changing the economic structure very much,” he says.
Notwithstanding this, slowing exports is not unique to Malaysia. Countries such as Indonesia and Singapore have also been seeing declining export performance as a result of slowing global growth.
With exports expected to be on the back burner next year, it is hoped that the government’s other initiatives to boost growth, as announced in Budget 2020, such as the formation of the National Committee On Investment to expedite the approval of foreign and domestic investments and customised package investment incentives, will pick up the slack.
Expert Cited
