Malaysia’s export contraction part of global demand weakness, say economists

File picture shows a ship leaving port in Georgetown near Penang. — AFP pic
File picture shows a ship leaving port in Georgetown near Penang. — AFP pic

KUALA LUMPUR, Nov 4 — Malaysia’s exports in September, which contracted 6.8 per cent year-on-year (yoy), the hardest fall since October 2016, is part of weaknesses in global demand that affects the rest of the world, economists said.

The Department of Statistics, Malaysia said today exports slipped 6.8 per cent y-o-y to RM77.7 billion in September while imports registered an increase of 2.4 per cent y-o-y to RM69.4 billion.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said Malaysia’s external sector was also not spared from the global developments.

“The US Institute of Supply Management Index for manufacturing sector has been below 50-point demarcation line for three months in a row,” he told Bernama today.

Additionally, he said the US nonfarm payroll has been averaging at 167,000 per month between January and October, which is lower compared to 2018 monthly average of 223,000.

“So the US economy is not really growing at robust rate and in fact signs of slowing down has been gradually emerging,” he said.

In Asia, Mohd Afzanizam said export performance had also weakened with Singapore Non Oil Domestic Export declining by 8.1 per cent in September and it had been in negative territory since March this year.

He also said that South Korea’s latest exports in October also fell by 14.7 per cent and it has been declining since December last year.

“In that sense, Malaysia’s nominal exports growth in 2019 could settle in the negative territory and the high base factor could also suggest that October exports could remain negative,” said Mohd Afzanizam.

Meanwhile, on overcoming subdued trade performance, Putra Business School senior lecturer and manager for business development, Dr Ahmed Razman Abdul Latiff, said there are several ways the government can do, externally and internally.

Externally, the government can increase number of bilateral trade agreements to encourage commerce between countries.

He said trade barriers such as tariffs or import quotas can be relaxed to encourage both the imports and exports between the countries.

“Meanwhile, internally, the government must continuously pursue efforts to increase the productivity of domestic companies, as well as encouraging them to become exporters by assisting them in financing and facilitating their export engagement,” said Ahmed Razman.

Meanwhile, MIDF Amanah Investment Bank Bhd said in a note that Malaysia’s export contraction fell to near the lowest rate in three years.

The second consecutive month of negative growth was due to weak performances in all major sectors.

Manufacturing exports, which accounted for about 85 per cent of total exports, contracted by 5.8 per cent yoy.

Similarly, exports of mining goods and agriculture products declined by 15.2 per cent yoy and 8.3 per cent yoy respectively.

The research firm said 2019 is a year of contraction for exports and imports as for the first nine months of the year, exports growth averaged at -1.1 per cent yoy.

In terms of absolute value, the monthly average in 2019 so far was RM80.9 billion, which is still lower than RM83.7 billion in 2018.

MIDF Research expects further drop in exports growth in October 2019 due to high base effect factor.

“In addition, the continuous decline in imports of capital and intermediate goods indicated weak prospects for future exports,” it said.

In line with its expectation, exports growth for the third quarter of 2019 (Q3 2019) registered a negative growth of 1.9 per cent yoy (Q2 2019: -0.4 per cent yoy).

“Looking ahead for Q3 2019, exports performance is expected to be quite vulnerable especially with the uncertainty over trade tensions.

“The higher base effect, particularly in October 2018, would influence the overall performance in Q4 2019,” it said, adding the outlook for the fourth quarter 2019 would be cloudy.

Nevertheless, MIDF expects commodity-based sector products particularly liquefied natural gas exports to offset the less favourable impact from the trade war in the second half of 2019 (H2 2019).

“With faltering trade globally derived from rising protectionism and loss of momentum in some major economies, especially Europe, we do not foresee a huge comeback in H2 2019,” said MIDF Research.

Meanwhile, RHB Research said it expects exports growth to ease further to 1.5 per cent for 2020, from 2.2 per cent estimated for 2019.

“The improvement in global semiconductor sales may point towards a recovery in the electrical and electronics sector,” it said in a separate note.

“However, the ongoing US-China trade tensions would continue to pose downside risks,” it added. — Bernama

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