DESPITE the gloomy outlook of the global recovering economy, Malaysia is still able to depend on the recovery its exporting activities as it starts to slowly but positively gain traction again.
In July 2020, MIDF Research showed that Malaysia posted a record-breaking trade surplus of RM25.1 bil (+15.6%) compared to the previous month’s record high of RM20.9 bil (+5.2%).
“This was due to exports that continued on a positive trajectory while imports remained in the negative,” MIDF said in an Aug 28 note.
Exports expanded at +3.1% year-on-year (y-o-y) whereas imports contracted at a faster pace of -8.7% y-o-y. On a monthly basis, both exports and imports grew at a softer pace of +11.7% month-on-month (m-o-m) and +8.7% m-o-m respectively.
MIDF pointed out that imports for all major categories weakened as purchase of both intermediate and capital goods declined to 17.3% and -19.7% y-o-y respectively, which was mainly due to lower inbound shipments of processed industrial supplies and reduced imports of machinery and mechanical appliances parts.
Weak purchases of such goods suggest that manufacturers are still pessimistic on the future demand for their products and some may not be running at full production capacity yet, hence lower demand of inputs.
Meanwhile, the surge in exports was mainly propelled by re-exports of electrical and electronics (E&E) and petroleum products.
For the first seven months of the year, Malaysian exports growth averaged at -4.6% y-o-y with the latest two months being positive, which was supported by sales of selected products of E&E, palm oil and rubber products.
“We expect this overall improving trend to continue for the remaining of the year, in line with the resumption of activities, globally,” MIDF said.
“Demand for E&E products is likely to continue increasing on a gradual manner buoyed by certain segments such as medical devices and electronic devices that facilitate the new norm of working from home,” it added.
“Same expectations are built for palm oil and palm oil-based agriculture products as exports will be supported by the suspension of palm oil export duty until Dec-20 besides restocking activities.”
MIDF also believed that demand for rubber products, particularly medical gloves, might remain elevated at least until mid-2021.
“Hence, we’ve revised our exports growth forecast to -3.5% y-o-y (versus 1.7% y-o-y in 2019) from -8.3% y-o-y that was initially estimated. Reopening of global economies will increase demand, resulting in better trade flows,” it said.
MIDF also noted that the rebound in China’s economy added support to its expectations, since China is Malaysia’s largest trading partner. It is believed that recovery in China’s economy would mean demand for local products will continue to increase.
Nevertheless, MIDF added, multiple downside risks remain prevalent, which includes new waves of Covid-19 and rising protectionism, as it will hinder most of the countries’ efforts to restart their respective economies. – Sept 10, 2020
