PETALING JAYA: An economist has urged the Investment, Trade and Industry Ministry (Miti) to explain its next course of action as Malaysia’s total trade continues to be in a downward trend for about a year.
Geoffrey Williams, an economics professor at the Malaysia University of Science and Technology, raised concerns about the poor trade outlook, considering that trade is a major contributor to economic growth.
In 2022, trade is valued at 141% of the national gross domestic product (GDP).
The country’s trade outlook appears sluggish at least for the next few months as major trading partners, including China, struggle with weak macroeconomic and demand conditions.
In August, Malaysia’s exports to the Top 3 markets – Singapore, China and the United States – contracted on a month-on-month (m-o-m) basis.
The total trade value also contracted for the third straight month.
“The high visibility investment approvals announced by Miti do not offset poorer trade because they are approvals and not actual investments, while trade is a real, day-to-day flow of economic value-added.
“Miti has to answer questions about the trade performance and if anything can be done,” Williams told StarBiz.
He made the comment after the Statistics Department reported that Malaysia’s total trade slumped by 19.8% year-on-year (y-o-y) to RM213.01bil in August, amid slower global demand and lower commodity prices.
Exports were lower by 18.6% y-o-y to RM115.16bil and imports edged down by 21.2% y-o-y to RM97.85bil.
In a note, MIDF Research said that slightly more than 75% of the decline in exports was attributable to lower exports of electrical and electronic (E&E), crude and refined petroleum products as well as palm oil and palm oil-based products
It is noteworthy that exports contracted after three months of growth, attributable mainly to the decline in semiconductor exports.
Compared to July 2023, the value of trade, exports, imports and trade surplus all contracted by 1.5%, 1.4%, 1.6% and 0.3%, respectively.
Exports to China, particularly, fell by double-digit in August, or 12.4% m-o-m to be exact, to RM14.7bil. China is the second biggest export market.
For the period of January to August 2023, trade reduced by 8.1% to RM1.718 trillion compared to the same period of last year.
Exports shrank by 7.6% y-o-y to RM935.22bil, imports slipped by 8.6% y-o-y to RM782.29bil and trade surplus fell by 2% y-o-y to RM152.92bil, respectively.
On the bright side, Malaysia registered the 40th consecutive month of trade surplus in August, despite registering a marginal 0.1% growth to RM17.31bil.
To be fair, Malaysia is not the only country affected by sluggish trade performance.
Miti in a statement said Malaysia’s key trading partners such as South Korea, China, Taiwan and Indonesia have also recorded negative trade growth in August and a drop in their global imports.
Trade-reliant Singapore also saw its key exports fall year-on-year for the 11th consecutive month, with shipments shrinking in nine of the city-state’s 10 biggest markets.
As both electronics and non-electronics exports to the United States, Europe and China declined, Singapore’s non-oil domestic exports fell 20.1% in August, according to official data.
Economist Manokaran Mottain said that Malaysia’s sluggish trade performance in August was not alarming, considering that the growth in major economies globally have been trending down.
“Naturally, the demand for Malaysian goods will also be affected.
“The weakness in Malaysian trade is likely to persist, but I expect a reversal towards the end of the year.
“GDP growth in the major economies should recover more convincingly towards the later part of the fourth quarter of 2023 (4Q23) or 1Q24. This would support the recovery of Malaysia’s trade performance,” he said.
Universiti Kuala Lumpur Business School associate professor Aimi Zulhazmi Abdul Rashid also foresees Malaysia’s export sluggishness to continue until end-2023, assuming there are no positive global events that will trigger the rejuvenation of global trade.
“The ongoing geo-political crisis in Eastern Europe that is approaching two years continues to be one of the major obstacles to global growth in 2024.
“This threatens to inflate the commodity prices again and disrupt the global supply chain,” he said.
Aimi Zulhazmi pointed out that Malaysia’s poor trade performance in August was due to a slowing global growth and the high-base effect from the August 2022 trade figures.
He added that as Malaysia’s biggest trading partners for decades, the slowdown in Singapore, China and the United States do not augur well to the Malaysian economy.
“Local businesses also are taking a more cautious approach as the global economy is predicted to continue the drag into 2024, hence influencing the consumers’ gloomy outlook in the domestic economy this year,” said Aimi Zulhazmi.
Williams highlighted that Malaysia is also affected by the slower exports to Asean countries.
“In Asean, trade is highly dependent on China so there is a double effect of slower direct bilateral trade and slower indirect trade intermediated through Asean,” he said.
He added that the weaker ringgit may have helped to make exports cheaper in the face of slower demand and to make imports less competitive against local alternatives.
MIDF Research maintained its projection that Malaysia’s exports and imports will fall by 6.4% and 6.9%, respectively, this year.
“Despite upside risks from better growth in China and expected recovery in E&E exports, we remain cautious that weak demand from advanced markets will continue to adversely affect international trade outlook,” stated the research house.
Looking ahead, Williams said Malaysia will have to ride out the current storm, which is out of its control.
Instead, he opined that the country should focus on domestic growth and reforms until the external challenges subside.
The weakness in global trade will extend into 2024, according to him, as business activities remain sluggish even though risks of recession have receded while inflation and interest rates have peaked.
Meanwhile, the situation in China is unclear, at best.
It is likely that China is in a worse condition than it appears, Williams cautioned. This would continue to hold back regional trade and growth into 2024.
“There are very few quick fixes for this. Ironically for those complaining of a weak ringgit, the exchange rate is acting as an automatic stabiliser and trade may have been worse with a stronger or fixed currency.
“Even if overall GDP growth will be lower for this year and in 2024, at least inflation is falling and interest rates are stable.
“Budget 2024 has to support this domestic stability,” he said.
Despite the prevailing challenges, Manokaran said that sentiment in the Malaysian business and trade landscape has improved, following the six state elections and the by-election in Pulai and Simpang Jeram, Johor.
“The election results turned out to be a status quo, which is positive for businesses.
“It has cleared uncertainties, and coupled with the government’s new policy announcements including the New Industrial Master Plan, this will lend support to our trade activities,” he added.