MALAYSIA’S July trade statistics, while highlighting a 6.8% year-on-year rise in exports to RM140.45bil, belie underlying currents that suggest more challenging times are ahead for both exports and the broader economy.
Even though the performance exceeds Bloomberg’s consensus for a median contraction of 3.2% after shrinking 3.5% in June and 1.2% in May, when imports are taken into account, it points to a bumpy road for the rest of the year.
Exports have only shrunk two months in the year to July on a year-on-year basis, but its volatility mirrors the uncertain landscape for both exporters and importers.
The United States tariff announcements continue to affect these trade flows, with semiconductor component shipments leading the July export figures, as businesses prepare to avoid paying Malaysia’s higher tariffs of 19% which began on Aug 8.
It was similar in April when exports increased 16.4% as US businesses scrambled to avoid the initial announcement on reciprocal tariffs, which was delayed three months, and then delayed again to the August deadline.
While overall imports increased 0.6% to RM125.5bil, a closer look shows a more mixed outlook.
Capital goods imports such as machinery or equipment for production were the key drivers as intermediate goods such as hardware components used by businesses here to produce goods for the export and domestic markets contracted 17.8%.
Fast-moving consumer goods and durables, including furniture and appliances, shrank 5%. Over a third of imports came from China and Taiwan, and these imports were largely electrical and electronics (E&E) products as well as transport equipment and machinery equipment and parts.
United Overseas Bank (M) Bhd senior economist Julia Goh and economist Loke Siew Ting say there are signs of weaker demand as indicated by a fifth straight month of contraction in import of intermediate goods and the first month of decline in imports of consumption goods in July.
They note that government commitments to rein in fiscal expenditure, raise revenue and mandate higher minimum wages as well as Employees Provident Fund payments for foreign workers will also weigh on domestic businesses, including exporters, on top of the tariffs.
“This has further tempered business sentiment and presages weaker manufacturing and export activities in the foreseeable future,” they add.
Economists have flagged semiconductor tariffs as the most concerning sectoral tariff for Malaysia.
“These risks are real and growing. They will be disruptive to supply chains, investment flows and export competitiveness,” Goh and Loke, who have kept their export growth projections for Malaysia at 3.8% in 2025 (from 5.8% growth achieved last year), say.
According to Mas Aida Che Mansor and Nazmi Idrus of CGS International Securities Malaysia Sdn Bhd, the semiconductor tariff is the biggest downside risk to the country’s exports as E&E products accounted for 43.5% of total exports year-to-July. This tariff was supposed to be announced a week ago but there has been no news so far.
The CGS International Securities economists report that 60% of Malaysia’s exports to the United States are E&E products, with most of them being semiconductor components.
Since nearly two-thirds of the country’s semiconductor exports come from US companies operating in Malaysia, there is a risk to foreign direct investment, both from new investments and expansions.
Businesses, whether US-based or not, may hold back due to uncertainties and exemptions if they move production to the United States, a key promise of US President Donald Trump.
Mas Aida and Nazmi suggest that shipments of E&E products will likely continue until tariff details are announced.
On the import front, they believe the 5% contraction in consumption goods mainly due to lower imports of processed foods and beverages for household consumption presage cautious private consumption in the third quarter (3Q25).
According to Bank Negara Malaysia, which released 2Q25 gross domestic product (GDP) data recently, domestic demand will cushion weaker external demand, with sustained household spending and further realisation of investment projects.
However, the central bank expects global economic growth and trade to moderate as tariffs take effect and support from frontloading dissipates in the second half of 2025. It has revised GDP projections to a range of 4% to 4.8% versus the earlier 4.5% to 5.5%.
BIMB Securities Sdn Bhd deputy chief economist Zafri Zulkeffeli says the drop in intermediate goods imports for July is the steepest fall since August 2023 and the continued weakness signals the cautious stance of manufacturers amid softening global trade conditions and the drag from higher US tariffs on Malaysian products.
“Retained imports in July recorded the lowest level in nearly two years, weighed down by declines in intermediate, consumption and dual-use goods.
“Capital goods remained the sole bright spot, expanding at a robust double-digit pace, supported by higher imports of both transport and non-transport equipment, likely tied to ongoing data centre investments and large-scale construction projects,” he says.
“Looking ahead, while weak intermediate goods imports point to softer near-term manufacturing activity, sustained capital inflows and investment-related demand should provide some offset in the months ahead,” Zafri says.
