AMID Malaysia’s trade surplus which softened to RM15.5 bil in July, there could be a downside to exports ahead as commodity price moderated with palm oil faces stiffer competition while demand for electrical and electronic (E&E) products may have peaked.
Elaborating on its projection that factors that supported trade performance in July are not likely to last, CGS-CIMB Research cautioned that Indonesia has cut its export levy for crude palm oil (CPO) effective June to August 2022 as a measure to lower its oversupplied domestic market.
“As such, global demand might shift away from Malaysia temporarily. Already we have seen July palm oil export declining on a month-on-month (mom) basis at -12.0% vs +9.5% in June although the data does not account for seasonal effect,” observed chief economist Nazmi Indrus in an economic update.
“For mining products, the price effect is seen to have played a major role in its growth performance. As such, the softer Brent oil average in August so far (at US$103/barrel month-to-date) would mean that the price effect could wane further.”
As for E&E products, CGS-CIMB Research expects shipments to start coming down in the quarters ahead. “Global demand for semiconductors has eased as the sector’s business cycle is likely (to have) peaked, indicating more normalised demand in the E&E product space,” opined the research house.
While exports posted a strong performance in July 2022, Malaysia’s trade balance posted a lower surplus of RM15.5 bil or a dip of 29.2% from June 2022’s RM21.9 bil following a larger decline in exports value vis-à-vis imports.
On a mom basis, both exports and imports contracted by -8.2% (June 2022: +21.2%) and -4.5% (June 2022: +15.2%) respectively. On year-on-year (yoy) basis, exports expansion was still robust but softer than the prior month at 38.0% yoy (June 2022: 38.7%) while imports expanded by 41.9% yoy (June 2022: 49.2%).
“On the trade balance perspective, lower July trade surplus marks a soft start for 3Q 2022,” stressed CGS-CIMB Research.
“The concern is if the expectation of weaker export performance materialises along with continued robust imports from the domestic recovery momentum, we could see a weaker goods surplus going forward.”
On the flip side, recovery in the services account following an increase in foreign tourist arrivals could provide a respite. “For now, we still maintain our current account surplus forecast for the year at 1.7% of GDP (gross domestic product) (2023F: 2.1%),” added the research house. – Aug 22, 2022
