KUALA LUMPUR (May 19): Malaysia's gross export performance dropped for a second straight month in April and by 17.4% year-on-year — the sharpest ontraction since May 2020 — due to a shorter working month, year-ago high base effects, lower commodity prices, and dimmer global growth prospects.
"The reading came in worse than our estimate (down 2.5%) and Bloomberg's consensus (down 5%)," according to UOB economists Julia Goh and Loke Siew Ting in a note on Friday (May 19).
The latest export outrun has also resulted in a year-to-date export contraction of 2.6% for the first four months of 2023 — compared with the 21.7% increase in the same period last year.
Gross imports, they noted, also fell by a double-digit pace for the first time since May 2020, at 11.1% y-o-y.
“This brought trade surplus down substantially to RM12.9 billion (from RM26.7 billion in March), the smallest trade surplus since May 2022,” they said.
They also noted that the steeper-than-expected export contraction last month was weighed by all three economic sectors and almost all products, except for refined petroleum products.
“Sluggish demand was also seen across most major trading partners, with shipments to G3 countries, China, and the ASEAN region all recording a double-digit annual contraction,” they said.
In view of persistent threats to the export outlook and negative base effects becoming more apparent in coming months, UOB cut its 2023 full-year export projection to a 7% contraction, as opposed to a 1.5% growth previously. Bank Negara Malaysia, it noted, has estimated that 2023's exports would see a 1.5% growth, after 2022's 25% increase.
Likewise, MIDF Research said the decline in gross exports came in worse than the market's and its expectations, even though it had expected exports would remain weak due to lower commodity prices and continued weakness in global demand for manufactured goods.
“The data shows that the weaker export performance was attributable to a sharper fall in domestic exports by 22.3% y-o-y, in contrast to sustained but slower growth in re-exports of 3.8% y-o-y.
“In particular, 75% of the fall was contributed by the reduced exports of manufacturing goods, primarily electrical and electronic (E&E), manufactures of metal, as well as chemicals and chemical products,” it said in a separate note.
In contrast to additional downward drag from lower shipments of crude petroleum and liquefied natural gas (LNG), exports of petroleum products remained the positive contributor to Malaysia’s export growth, it noted.
“Apart from the high base, we still expect the near-term export outlook to be constrained by the relatively lower commodity prices, especially for palm and crude oil,” it said.
“We remained cautious that the weakness in external trade will continue in view of the more domestically-driven post-lockdown recovery in China's and slowing growth (and final demand) from the advanced economies. Taking into account the recent weakness in trade numbers in April 2023, we now predict exports and imports to fall by 3.4% and 1.9%, respectively, this year," it said. It previously expected Malaysia's exports to expand by 9.2%, while imports would grow 9.5%.
While China's recovery could boost international trades this year, the research house however views that weak global demand, particularly for manufactured goods, combined with limited price increases and a high base, would translate into slower external trade performance this year.
"In fact, we expect lower commodity prices will continue to affect resource-based exports in the next few months.
"Trade outlook could weaken further if global inflation remains high, central banks continue to tighten monetary policy, and geopolitical risk deteriorates," it noted.
Notwithstanding the external trade weakness, MIDF expects Malaysia’s economic growth to remain positive, driven by sustained growth in domestic demand in view of the positive outlook for consumer spending and the job market.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said Malaysia's export performance is trending in line with other regional economies.
“The global purchasing managers index (PMI) for the manufacturing sector has been below the 50 points demarcation for two months in a row, with April’s number coming in at 49.6 points. The global PMI saw an improvement in February 2023 to 50 points after experiencing a decline since June last year," Mohd Afzanizam noted in a text reply to The Edge.
According to him, the recovery in February was tentative, which suggested that external demand looks increasingly challenging.
"While we are hoping China’s turnaround will provide the offsetting factor. The latest data releases have been quite disappointing," he said.
He added that fixed asset investments grew by 4.7%, lower than the market consensus estimates of 5.5%. Similarly, China’s retail sales growth was at 18.4% (from 10.6% in March), below the market consensus of 21.0%, while industrial production (IP) growth was at 5.6% (from 3.9% in March), below the market consensus of 10.9%.
"Going forward, we expect Malaysia’s trade figures to be lower as the external demand is going to be softer," he added.
RHB Investment Bank Bhd, on the other hand, maintained its view that the trade momentum is likely to show signs of improvement by early second half of 2023 (2H2023), while the weakness in trade momentum is likely to persist for the remainder of 1H2023.
"The sharp contraction of April trade data is due to one-off factors and not the start of a new downward trend, with the US firms likely cutting back on imports on the back of the US banking sector risks and seasonal factors (lunar new year effect) impacting imports from Malaysia by Chinese companies.
"The April trade data is well below historical prints observed during the month, which makes us suspicious that against the backdrop of improving momentum in the global industrial production cycle," it said.
It kept to its view that the global economy would recover by 2H2023, which should be supportive for Malaysia’s trade performance by 2H23.
"Financial conditions are likely to stabilise in 2H2023 as most major global central banks would have reached their peak policy interest rate objectives and inflationary momentum would likely ease on a sustained basis," it added.