PETALING JAYA: The latest trade data released on Tuesday point to challenging times ahead – not just for the country’s exporters but also the domestic economy.
This is as a combination of tariff uncertainties and slower growth crimp consumer demand both abroad and at home, following a drop in intermediate and consumption goods imports.
The forecast remained challenging for exports in the second half of 2025.
This is despite the unexpected boost to July exports in the face of market consensus projecting another month of contraction as overseas businesses ramped up their purchases ahead of US reciprocal tariffs that became effective on Aug 8.
United Overseas Bank (M) Bhd said despite the July exports surprise, in which total exports increased 4.3% year-to-date (y-t-d), the country’s trade outlook remains subject to downside risks for the rest of the year and into 2026.
This is underpinned by spillover risks stemming from breakdown in US-China trade talks, signs of weaker demand due to contractions in intermediate and consumption goods, sectoral tariff risks and the effects of the reciprocal tariffs.
Maybank Investment Bank Research noted that “the devil is in the details” for sectoral tariffs, of which semiconductor goods continue to be the most at-risk for Malaysia, a major export to the US market.
“Expect continued choppy external trade numbers as US tariff uncertainties shift from reciprocal tariffs to product-specific tariffs, namely on semiconductors,” it added.
Besides the downside risks from semiconductor tariffs, CGS International Securities said palm oil exports could be in danger of losing market share in India to Indonesia, with palm oil exports falling flat and only higher crude palm oil prices providing some buffer.
CIMB Securities pointed to the shifting trends in the trade balance in July, where the trade surplus despite narrowing y-t-d, became increasingly concentrated in the United States, Hong Kong and Singapore, which together accounted for 197% of total surplus from 153% in 2024.
“However, these gains were nearly fully offset by wider structural deficits with mainland China, Taiwan and South Korea (189% of total surplus), highlighting Malaysia’s reliance on upstream electrical and electronic inputs,” it said.
The research house added that exports growth to the United States, Hong Kong and Singapore was partly driven by tariff-related front-loading, while higher imports from mainland China and Taiwan point to stockpiling of intermediate goods.
“Meanwhile, lower energy import bills from Saudi Arabia, the United Arab Emirates and Brazil provided only limited relief. Overall, the trade balance remains fragmented, shaped by temporary tariff distortions and entrenched structural deficits,” it said.
TA Research anticipates the drag from the reciprocal tariff may only materialise with a lag effect, likely in the late third or fourth quarter of the year, as supply chains adjust and exporters recalibrate orders.
