Insight - Will exports still shine?


With the MCO 3.0, which began on June 1, extended for another two weeks till June 28, there are concerns on the extent of moderation in exports during this period.(File pic West Port)

WHILE Malaysia’s total trade in April had surged 43.2%, reaching RM190.8bil compared with a year ago, how will it be from May to June and maybe onwards, under the current movement control order (MCO 3.0)?

With the MCO 3.0, which began on June 1, extended for another two weeks till June 28, there are concerns on the extent of moderation in exports during this period.

As major sectors are allowed to operate under a 60% capacity, the impact on them may, at this point, still be regarded as minimal.

But the effect on individual companies especially the small and medium scale enterprises (SMEs) can be substantial.

Many non-essential sectors such as plastic, paper products, wood-based as well as garments and apparel, which are not allowed to operate, are not able to ship out their exports.

“These are the types of sectors where SMEs are dominant; the prolonged lockdown will make the situation worse.

“Even for those under under essential services operating at 60% of their workforce, total output and productivity will indeed be impacted too, ’’ said Small and Medium Enterprises Association national secretary Yeoh Seng Hooi.

Turnaround time for production lines will be affected by the 60% capacity limit, and the momentum of recovery in exports will be affected by the extension of the FMCO, said Bank Islam Malaysia Bhd chief economist Mohamad Afzanizam Abdul Rashid.(pic above)

Against this local development, global demand is quite healthy; the global purchasing manufacturers’ index (PMI) continues to hover above 50 which signals that manufacturing is on an expansionary mode.

(The PMI indicates the health of the manufacturing sector; a reading above 50 represents an expansion of the sector).

In the current MCO 3.0, the all-important electrical and electronic (E&E) sector is categorised as “essential”, unlike in the earlier MCO 1.0 of 2020.

Since E&E comprises 40% of total exports, this segment can continue to operate largely as per usual, remaining as a key contributor to export growth.

The E&E sector is supported by the tailwinds of global chip shortage and heightened demand.

‘’Hence, we still view exports as the key engine of growth for Malaysia for the rest of 2021, ’’ said OCBC Bank Malaysia economist Weillian Wiranto.(pic below)

Manufacturing is a priority sector to receive Covid-19 vaccinations, and losses in output during this FMCO period will be made up in the coming months, against a robust outlook for global trade.

Besides E&E, commodity exports are also likely to remain buoyant.

RHB Bank is maintaining its headline gross domestic product (GDP) growth of 5.4% year-on-year, with the export data, so far, turning out to be stronger than anticipated, said RHB group chief economist Dr Sailesh Jha.

With the gradual reopening of sectors in the subsequent phases of the FMCO, we may see a spike in export shipments in the third quarter, said former RHB Research Institute chief Asean economist Peck Boon Soon.

Some exporters with completed products, and who were not allowed to operate, could be making a beeline for the ports.

As exporters, they have contracts to fulfill, and it is hoped that their customers would agree to accept the delayed shipments as well as discrepancies in letters of credit, said Yeoh.

Subject to the impact of the MCO 3.0 and the efficiency of the vaccination roll-out, Alliance Bank Malaysia Bhd sees that the re-imposition of the MCO 3.0 will have minimal impact on Malaysia’s external trade.This is partly attributed to the strong economic recovery in major trading partners in the US and China.

“Malaysia’s total exports had achieved new milestones for two consecutive months, indicating the persistent resilience in external trade performance.

“This is despite the ongoing movement restrictions and uneven recovery in the global supply chain, ’’ said Alliance Bank Malaysia chief economist Manokaran Mottain.(Pic above)

Exports in April had surged by 63% year-on-year to RM105.6bil, compared with a year ago, helping to boost the PMI for April, which rose to a high of 53.9 and remained on an expansionary trend in May (51.3).

In March, exports grew by 31% year-on-year, surpassing the RM100bil mark to hit RM104bil.

Major export commodities – E&E, rubber gloves, petrochemicals, chemical products, palm oil and palm-oil based products – which are allowed to operate during this MCO at 60% capacity, represent about 63% of total exports.

Mah Sing Group Bhd, which has started manufacturing rubber gloves, has not experienced any delays in glove shipments with orders remaining at normal levels, said CEO Datuk Ho Hon Sang.(pic below)

Mah Sing said in April that it had secured purchase orders until September with the first batch of shipments to be sent to buyers in China, the US, the Middle East, Japan and Korea, around May and June.

The export sector needs to run smoothly in order to fulfil orders on time and efficiently.

There are some hitches during this extended MCO; major sectors are operating at 60% capacity while companies under the non-essential list but with items ready for export, are unable to operate.

Time is of essence in our struggle to get out of this Covid-19 grip as we want to urgently capture the export wave.Opportunities may not knock twice.

Yap Leng Kuen is a former StarBiz editor. The views expressed here are the writer’s own.

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