Moderate exports forecast for 2H23

Afzanizam: In light of the recent appreciation, there could be a possibility that the ringgit might experience some correction on profit-taking activities.

PETALING JAYA: The weak ringgit could not stop Malaysian exports from ending the first half of 2023 (1H23) on a disappointing note, and economists have cautioned the next six months are likely to be worse.

Battered by slower demand from China and the United States, among others, the decline in exports is likely to cause the economy to grow more moderately this year.

Economist Aimi Zulhazmi Abdul Rashid blamed Malaysia’s “over-reliance” on existing trade partners for making the export sector vulnerable.

The associate professor with Universiti Kuala Lumpur Business School called for a mitigation strategy to be executed.

“Malaysia would have to expand trade beyond its traditional markets in China, the United States and Asean neighbours,” he told StarBiz.

Exports in 1H23 tumbled by about 13.5% to RM703.27bil, in comparison to the second half of 2022. On a year-on-year (y-o-y) basis, exports fell by 4.5% in 1H23.

Another “negative growth” may be recorded in the ongoing 2H23, warned Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid.

This is possible due to the high base effect experienced last year, when exports grew by 25% to RM1.55 trillion.

“Also, the negative growth is possible on the back of the weaker global demand outlook following tight liquidity conditions globally,” he told StarBiz.

The anticipation of weaker exports, however, is already incorporated into Bank Negara’s official growth forecast of 4% to 5% for 2023.

The central bank expects gross exports to expand modestly by 1.5% this year, following two consecutive years of double-digit expansion.

Economists Geoffrey Williams and Aimi Zulhazmi said that global markets are expected to be lacklustre for the rest of 2H23, and hence, would not provide a major push to exports.

Aimi Zulhazmi also noted that a mild recession looms over the developed economies such as the European Union, the United Kingdom and the United States.

“As of June 2023, China exports to the United States had dropped by 24% and imports also declined by 4%.

“The high inflation and ongoing geopolitical crisis in the developed economies are key factors causing trade disturbances and slowing global economic growth,” he said.

The Investment, Trade and Industry Ministry (Miti) reported yesterday that the country’s overall trade contracted 16.3% in June 2023 to RM222.14bil as compared to a year ago, as the value of shipments exchanged with its major trading partners remained on a slide.

The decline in trade value was owing to a 14.1% y-o-y drop in exports to RM123.98bil and 18.9% contraction in imports to RM98.16bil.

“The performance was similar to other regional markets, notably, China, Singapore, Indonesia, Taiwan and South Korea which recorded negative trade growth for June 2023,” it said in a statement.

The trade surplus in June, however, was 11.3% higher than in the same month in 2022 at RM25.81bil.

According to Miti, the country’s export value was bolstered by strong demand for electrical and electronic products, iron and steel products, metalliferous ores and metal scrap, transport equipment as well as processed food.

For the entire second quarter of 2023, trade was down 11.3% y-o-y to RM643.22bil, with export value falling 11.1% y-o-y to RM348.68bil, imports dropping 11.5% y-o-y to RM294.54bil and trade surplus shrinking 8.8% y-o-y to RM54.14bil.

This brought the country’s year-to-date trade surplus down 3.6% to RM118.52bil.

Malaysia University of Science and Technology or MUST economics professor Geoffrey Williams said the June trade figures reflected the general view that global headwinds would be the main challenge for the economy this year.

“Total trade has been trending down for about a year with both exports and imports on a downward trend.

“So, the trade balance has been flat and although it is a positive contribution to gross domestic product (GDP), it is not driving growth so much.

“This is largely due to difficulties in major markets in the United States, Europe and China where the opening up and domestic economic conditions are very much below expectations.

“China is close to deflation for example,” he said.

Williams also pointed out that Malaysia’s neighbours in Asean were also dragged down by the global situation.

“These are outside the influence of Malaysia and we need to weather the storm.

“The recent weakness of the ringgit has helped exporters despite the noise from some quarters, but this is not something to be relied on long term,” he added.

Echoing a similar stance, Mohd Afzanizam said the external demand is unlikely to be the driver for Malaysia’s GDP in 2023.

This is based on the fact that Malaysia’s purchasing managers’ index (PMI) has been lingering below the 50-point demarcation line for 10 months in a row.

“Lower PMIs are not unique to Malaysia as it happens across the globe,” he said.