RAM Ratings sees better exports in March, trade surplus RM10.5b

KUALA LUMPUR: An improvement in external demand is expected to lift Malaysia's exports in March while trade surplus is forecast to to be RM10.5bil, says RAM Ratings.

It said on Thursday March exports are expected to inch up 1.6%, an improvement from the 2.0% contraction in February,

“External demand is likely to have gradually gathered pace after a temporary decline in February due to Lunar New Year festivities,” it said.

RAM Ratings said any rebound would be moderated by reduced restocking demand amid some front-loading of shipments in January, along with a high base effect from the previous year (March 2017 growth: 24.1%). 

In line with still sluggish exports expected for the month, imports are anticipated to have contracted 4.9% in March as demand for intermediate inputs is to remain weak, compounded by a high base effect from 2017.

A deceleration in export and import price growth, due to the appreciating trend of the ringgit, has also had a dampening effect on nominal growth. 

The growth rate for export and import unit value indices had declined for six consecutive months. 

“With the US$/Ringgit exchange rate envisaged to remain strong (2018 average: 3.9) compared to the previous year (2017 average: 4.3), lower export and import price growth should feed through to more moderate nominal trade growth in 2018, in contrast with the robust growth (exports: 18.9%; imports: 19.9%) seen in 2017,” it said. 

However, it cautioned that the proposed US tariffs on Chinese technological goods (brought about by the US Trade Representative’s 301 Investigation on China) “pose a direct risk to Malaysia’s trade momentum”.

It cited the importance of electrical & electronic (E&E) products to overall export share and the sector’s established position in the global value chain. 

That said, the composition of US imports from Malaysia and China, respectively,  is different – Malaysia acts more as a source of intermediate parts and components. 

China’s shipments to the US, on the other hand, constitute mostly finished goods, which is what the US believes primarily puts its own producers at a competitive disadvantage.

Accordingly, a larger volume of finished technological goods is likely to be produced onshore in the US, thus bypassing China. 

“The upside to Malaysia’s export resilience would be manifested in the form of intermediate goods demand coming directly from the US rather than through China which has thus far acted as a conduit. 

“Additionally, firms might decide to vertically integrate their processes in Malaysia, potentially increasing foreign investment and in turn boosting exports,” RAM Ratings said.