Centre for Market Education chief executive officer and Institute for Democracy and Economic Affairs (Ideas) senior fellow Carmelo Ferlito, (pic below) said the outlook for exports and international trade remained positive for the next two quarters.
“However, while the manufacturing sector is allowed to operate, it more easily finds its way to external markets rather than internally, where domestic demand is expected to remain weak.
“Production is not enough to revive the economy. If you produce, but the retail sector is closed and consumers are not allowed to spend, then your production needs to move somewhere else,” he told StarBiz.
Exports in the third and fourth quarters of the year will continue to be spurred by the electronics, petroleum, palm oil and rubber sectors.
“While still in positive territory, I think the figures will be moderate when compared with the second quarter of this year because the baseline for the third and fourth quarters of 2020 was higher,” he said.
PublicInvest Research meanwhile said Malaysia’s exports momentum would be driven by manufacturing and agriculture goods, thanks to massive global fiscal spending in 2021.
“Demand for electrical and electronics (E&E), in the meantime, will get a boost from global pandemic conditions given the expected continuation of virtual learning and work-from-home arrangements.”
PublicInvest added that demand for E&E would also be lifted by structural changes in the global telecommunication sector (migration from 4G network to 5G by 2025) that will push demand for handphones and smart devices.
“The projected expansion in the Organisation of the Petroleum Exporting Countries (Opec) output and an expected turnaround in oil prices will also be a boon for mining exports,” it said.
The export momentum is expected to sustain for the remainder of this year, according to UOB in its global economics and markets research note.
“Rising vaccination rates, expectations of further relaxation of containment measures by the third quarter of 2021, as well as a firmer global economic rebound will further provide impetus to Malaysia’s export recovery ahead. We maintain our 2021 full-year export growth forecast at 22%.”
It noted that about 18% of Malaysia’s population or 5.91 million people have been fully vaccinated as at July 27.
“In his briefing on the National Recovery Plan (NRP) at the special Parliamentary sitting on July 26, Prime Minister Tan Sri Muhyiddin Yassin said the national Covid-19 immunisation programme would be intensified to achieve the target of 100% of Malaysian adults fully inoculated by October, compared with the original plan of 80% of adults being fully vaccinated by the first quarter of 2022.
“With this, the government anticipates that most states will move into phase four or the final phase of the NRP by October at the earliest.”
On a regional level, PublicInvest Research said Asean exports are expected to remain strong in the third quarter, before normalising in the final quarter of the year thanks to the revival in global demand and global pandemic conditions that will push demand for agriculture, commodity and manufacturing goods.
“This will be supported by the expected turnaround in mining exports consistent with the Opec output adjustment that will continue into 2022, an encouraging growth driver for major producers like Malaysia, Indonesia and Thailand.”
According to PublicInvest Research, regional exports will also benefit from a low base advantage following Covid-19 containment measures last year that led to supply and demand interruptions.
“Asean exports may still be susceptible to the risks of US-China’s second trade talk, apart from the global resurgence in Covid-19 infections that may lead to pockets of containment measures.”
Despite the recent outbreak of new Covid-19 clusters, CGS-CIMB Research said a quicker vaccine completion and expansive policy support had put Singapore ahead of its peers in recouping economic ground, with gross domestic product (GDP) growth projected at 6.6% in 2021 and 4.3% in 2022.
“For Malaysia, we are revising our 2021 GDP forecast from 4.4% to 3.9% as we extend our assumption of phase one and two NRP restrictions being in place until August, but foresee reduced risk of further downgrades should vaccinations remain on track and retain our 2022 forecast at 4.7%.”
Malaysia’s exports to all major markets, namely Asean, China, the United States, the European Union and Japan, recorded double-digit expansion in June.
The strong exports turbo-boosted Malaysia’s total trade performance, which surpassed RM1 trillion in value in just the first six months of the year.
According to the International Trade and Industry Ministry (Miti), this was the shortest period to breach the RM1 trillion milestone.
Data provided by the Statistics Department showed that exports to the five major markets in June totalled RM72.25bil, exceeding imports of RM57.8bil.
The markets collectively contributed almost 69% to June’s total exports.
Miti said the country’s total exports in June grew for the 10th consecutive month year-on-year since September 2020, registering a strong growth of 27.2% to RM105.47bil.
This was the third time exports exceeded the RM100bil-mark.
Ferlito cautioned that “emotions and expectations should not get overheated” by Malaysia’s extraordinary trade performance in the second quarter of this year.
“In fact, the term of comparison is with the second quarter of 2020, which was the weakest quarter for the Malaysian economy. Therefore, the baseline is very low.
“Furthermore, exports, in general, grew more than imports. This is good on one side, but it is also a sign of domestic demand weakness. Thus, domestic manufacturers turn to oversea markets, while foreign producers struggle to find their way to the Malaysian market.”
Ferlito added that Malaysian exports remain very much anchored to petroleum products, rubber and palm oil.
“This means that exports are very much driven by raw materials or by products related to early stages of the production process. In a nutshell, they are not consumption products.
“This means that the structure of the Malaysian manufacturing sector is not evolving,” he said.