PETALING JAYA: The outlook for Malaysia’s exports remains uncertain, particularly in the second half of the year, as it heavily depends on how the US-China trade tensions play out.
According to the Socio-Economic Research Centre (SERC), escalating trade tensions and higher tariffs could further impact business and financial market sentiment, slowing investment and trade.
“We continue to stay cautious about the outlook of Malaysia’s exports, particularly in the second half-year, with a lot hinging on the US-China trade deal that is proving elusive so far,” it said in its April-June 2019 Quarterly Economy Tracker released here yesterday.
Following two months of declines, exports grew by 1.1% in April 2019, on the back of improvement in demand for electrical and electronic products, crude petroleum, chemical and chemical products.
Between May and June, the think tank said, exports could see better annual growth, partly supported by the relatively low exports levels a year ago.
SERC, however, expected downside risk to its current export growth estimate of 3.3% for the year.
In the report, the think tank said it maintained its forecast of real GDP to grow by between 4.5% and 4.7% in the remaining quarters of the year as the external environment continues to be impacted by escalating trade tensions.
The country’s economy grew at a slower pace of 4.5% year-on-year in the first quarter due to slowing domestic demand and weaker exports.
On the latest economic indicators, it said the weak data for April suggested that economic growth would continue to be moderate, estimated at between 4.5% and 4.6% in the second quarter.
“Retail sales, industrial production, exports and banking system loans all continued to grow, albeit moderately for some,” it said.
The think tank also said Malaysia had emerged from the trap of technical deflation as the distortionary effect from transport prices normalised.
Headline inflation reading, as measured by the Consumer Price Index (CPI) has remained in positive trajectory for two months in a row in April and March.
SERC expected headline inflation to average at between 1.0% and 1.5% in 2019 due to some cost pass-through from domestic cost factors such as the lapse in consumption tax policy, increase in prices of soft drinks due to soda tax and the increase in minimum wage.
On the ringgit, it said the currency would continue to be subjected to external pressures.
“In times of increasing uncertainty, we believe that Malaysia’s economic and financial fundamentals should remain supportive of the ringgit over the medium-term.
“Fundamental factors like the projected continued economic growth, current account surplus and still ample foreign reserves will continue to support the ringgit,” it said, adding that it expects the ringgit to be at between RM4 and RM4.15 per US dollar by year-end.