PETALING JAYA: Malaysia’s March trade numbers held firm, but economists caution that the full fallout from the US-Iran war has yet to surface in the data.
Mohd Afzanizam Abdul Rashid, chief economist at Bank Muamalat Malaysia Bhd, said the March outturn was “still commendable”, as “the effect from the war in Iran has yet to be felt in a big way”.
“The rise in exports from the manufacturing sector especially electrical and electronics (E&E), commodities and chemical related products suggest that global demand is still intact, especially in the context of artificial intelligence (AI)-driven investment,” he told StarBiz, adding that a double digit rise in capital goods import indicates “investment activities are still growing at a healthy clip”, providing further support to domestic demand.
Nonetheless, Afzanizam said the outlook of the country’s trade performance will be more challenging in the second quarter of financial year 2026 (2Q26), as businesses and consumers grapple with higher fuel prices.
“This can have an impact on sentiment. Having said that, fuel subsidies would, to a large degree, help cushion the impact,” he said.
The country’s external trade performance decelerated in March, with a slightly softer total trade growth of 9.3% year-on-year (y-o-y) to RM273bil. Exports increased at a slower-than expected pace by 8.3% y-o-y to RM148.8bil.
This compares with a 9.5% y-o-y expansion in total trade and a 10.8% y-o-y increase in exports recorded in February.
March exports came in below expectations, falling short of the 14% median increase predicted in a Bloomberg survey of economists, and the 11.7% estimate in a Reuters poll.
Meanwhile, imports were up by 10.4% y-o-y to RM124.2bil. Imports of capital goods surged by 25% y-o-y, while consumption and intermediate goods declined by 8% and 1.1% y-o-y.
Trade balance, valued at RM24.6bil, registered a surplus in March, but fell by 0.9% y-o-y, and was lower than the expected surplus of RM25.1bil by analysts.
The Statistics Department said March exports figure was supported by the growth in both re-exports and domestic exports. Re-exports, which accounted for 25.5% of total exports, rose by 38.3% y-o-y, while domestic exports expanded by 0.9% y-o-y.
On the softer-than-expected export growth and narrower trade surplus, iFAST Capital research analyst Kevin Khaw Khai Sheng said he sees “no major issue” and opined the latest figures largely reflect a base effect and a normalisation from last year’s unusually strong numbers.
While Khaw acknowledged the risk of further narrowing in the country’s trade surplus in the coming months as the impact of the war becomes more pronounced, he said even in the most bearish scenario, Malaysia’s trade surplus is unlikely to decline to RM100bil and below for the year.
“The structural tailwinds for Malaysia will be from the E&E and machinery and equipment exports.
“That said, there are some detractors, which include a potential slowdown in re-exports in the second half of 2026 (2H26).
Malaysia has been benefiting from ongoing tariff developments, with companies using the country as a re-export base. However, once tariff developments stabilise, this effect is expected to diminish, leading to a relatively likely weaker re-exports growth,” Khaw said.
Khaw added that expectations of a further narrowing in the trade surplus are mainly driven by a pickup in imports. He said the uptick in imports is largely driven by capital goods imports, which is a positive sign as it aligns with Malaysia’s direction under the 13th Malaysia Plan, with a focus on technology, construction and domestic-driven growth.
“These imports are used to build capacity, such as in data centres, indicating that the country is in the midst of a transition. Export growth is likely to remain stable at around 6% to 8% for the full year,” he said.
Sunway University economics professor Yeah Kim Leng said the impact of the war on trade is likely to be “gradual” given Malaysia’s diversified exports and its large E&E segment that is less affected by the war compared to fuels, commodity and petrochemical products.
Yeah said while the country’s trade outlook in months ahead is expected to soften as it registers second-order effects from weaker global demand – driven by supply chain disruptions, inflation, and cutbacks in consumption and investment amid rising risk aversion and uncertainty stemming from the Middle East crisis, the slowdown is “not expected to be overly severe” compared to more energy-import dependent countries in the region.
“Export and import growth in the coming months will likely be volatile but forecast to fluctuate around the 4% to 8% range.
“The country is expected to experience a less buoyant but still positive trade outlook in the coming months,” he said.
By destination, exports to the US slowed down to expand by 18.3% y-o-y (February 2026: 42.3% y-o-y). This marks a fourth consecutive month of double-digit gains, albeit at the slowest pace in the sequence.
Meanwhile, exports to Singapore fell slower by 10.3% y-o-y (February 2026: a decline of 17.1% y-o-y) mainly weighed by contraction in E&E shipments and petroleum products.
Exports to China saw a slower pace of growth by 7% y-o-y (February 2026: 13.2% y-o-y), reflecting a moderation in E&E products and a marginally sharper decline in chemical & chemical products.
China remains as Malaysia’s top trading partner. Shipments to Asean rose by 2% y-o-y in March, following a sharp decline of nearly 10% y-o-y in the previous month, due to higher shipment of E&E products and crude petroleum.
Khaw said China is likely to remain Malaysia’s largest trading partner going forward, with Asean potentially emerging as a strong contender for the top spot. This, he said, is supported by ongoing supply chain diversification.
Khaw pointed out the key factor to watch for is how China is going to revitalise its economy. Particularly, with the Chinese economy facing deflationary pressures, this could have a negative impact on Malaysia’s overall growth.
“That said, the country has done well in diversifying its trading partners. We are not solely reliant on China, as we also have strong trade links with Asean, the United States and Australia,” he said.
