Concerns over external trade

Williams anticipates a continuation of slow trade in the current year.

PETALING JAYA: Despite experiencing a trade surplus for the 45th consecutive month, Malaysia’s trade gain shrank for the fourth consecutive month in January 2024 to RM10.12bil, reaching its lowest point since May 2020.

This shift can be attributed to the country’s total imports, which are growing at a faster rate than total exports.

For the first month of 2024, Malaysia saw its total exports increase by 8.7% year-on-year (y-o-y) to RM122.43bil, while total imports surged by 18.8% to RM112.3bil, narrowing its trade surplus.

Moreover, Malaysia observed a widening trade deficit with its largest trading partner, China.

In January 2024, Malaysia’s exports to China amounted to RM13.87bil, while imports reached RM25.7bil, resulting in a net trade deficit of RM11.83bil, compared to RM7.06bil recorded in January 2023.

This reflects a month-on-month (m-o-m) decrease of 21.5% in exports and an 11% increase in imports.

Looking ahead, economists expressed concerns about Malaysia’s external trade, citing the impact of economic recessions in major trading partners and the absence of an immediate catalysts for optimism.

The prevailing conditions suggest a challenging outlook for the country’s trade performance in the coming months.

UCSI University Malaysia associate professor in finance Liew Chee Yoong has a bleak outlook for Malaysia’s external trade in the upcoming months and for the entire 2024.

This stems from the recent entry of Japan and the United Kingdom into an economic recession.

“I would expect Malaysia’s external trade to be gradually reduced as the demand for Malaysian exports will gradually slow due to increasing likelihood of a recession in developed economies,” he told StarBiz.

The increasing likelihood of a recession in developed economies, including Malaysia’s major trading partners like China, is anticipated to have a significant negative impact on external trade levels, he added.

Meanwhile, economics professor at the Malaysia University of Science and Technology, Geoffrey Williams, anticipates a continuation of slow trade in the current year, similar to the trend of last year.

The economist noted that there are no specific catalysts on the horizon for optimism, at least for the near term, given major trading partners are either stagnant or experiencing technical recession.

“There is no particular reason for optimism until interest rates start to fall and real growth starts to reappear,” Williams said.

He highlighted the overall weakness in international trade, with recession and stagnation affecting major markets, while significant geopolitical risks are also identified as factors hindering real investment.

“China is struggling to recover to full potential, in particular, and this is a major driver of growth in Asia on which Malaysia depends,” he added.

Liew, however, noted several catalysts that could drive further growth in Malaysia’s external trade.

These include investments in technology and innovation, particularly in high-tech and digital sectors, as well as improvements in logistics and infrastructure within the country to enhance export efficiency.

Additionally, he said other catalysts include shifts in the global supply chain, where Malaysia can position itself as a strategic trading hub for green technologies, investments and artificial intelligence technologies.

“However, as developed economies gradually move towards a recession in 2024, I would expect this positive momentum of the country’s external trade to be shortlived,” he added.

Malaysia’s trading activity with its major trading partners bounced back in January, chalking up 13.3% growth to RM234.73bil, its first month of expansion after 10 consecutive months of y-o-y contraction.

In a statement, the Investment, Trade and Industry Ministry said the January trade value – bolstered by increased trading activity with Asean, the United States, the European Union and Japan – was the highest monthly value recorded for January.

“The export growth was boosted by higher shipments of petroleum products, machinery, equipment and parts, iron and steel products as well as manufactures of metal,” it said.

On a monthly basis, total trade, exports and imports were up 4.3%, 3.4% and 5.3%, respectively, but trade surplus was down 13.8% over December 2023.

By destination, trade with China rose 6.9% to RM39.57bil, although exports to Malaysia’s largest trading partners fell 7.4% to RM13.87bil as a result of lower exports of electrical and electronic (E&E) products.

Trade with Asean picked up 17.4% to RM64.87bil.

Markets in the region that received more exports from Malaysia included Vietnam, Indonesia and the Philippines, which all saw double-digit increases in shipment value due to strong exports of petroleum products.

Meanwhile, trade with the United States saw double-digit growth of 18.2%, with exports jumping 11.9% to RM13.48bil on shipments of E&E products, iron and steel products as well as wood products.

On imports, intermediate goods increased 21.4% to RM58.79bil due to higher imports of processed industrial supplies. Capital goods surged 41.8% to RM13.72bil due to higher imports of non-transport capital goods.

Consumption goods expanded by 25.4% to RM10.34bil due to higher imports of processed food and beverages, mainly for household consumption.

Liew said Malaysia’s trade performance in January 2024 showed a significant rebound, which aligned with previous expectations.

“Any variance to these expectations can be attributed to global economic uncertainties and inflationary pressures, which eventually result in higher exchange rate volatility affecting the level of external trade,” he noted.

Williams, on the other hand, said although there is some improvement in both exports and imports, the overall trade balance has declined by 44% compared to last year.

“So these must be viewed as normal monthly fluctuations until a consistent trend is seen.

“The factors contributing to the data are not clear but it is likely that the weakness of the ringgit is helping to make exports cheaper and so, holding up export sales,” he added.

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