KUALA LUMPUR (Sept 19): Malaysia’s exports contraction is seen narrowing in 4Q2023 after weaker-than-expected August data, economists said, expectations of a smaller base effects, an upturn in global tech cycle and firmer commodity prices.

Economists also pointed to potential recovery rebound in global manufacturing data that hints at an early signal of turnaround, although the view is mixed towards the prospects of key economies like the US and China.

Malaysia’s gross export performance declined 18.6% year-on-year (y-o-y) to RM115.16 billion in August 2023 due to subdued global demand, slower commodity price increases, and high base effects from a year earlier.

It marked the sixth consecutive month of contraction in exports, and the sharpest decline since May 2020, coming in below Bloomberg consensus of 16.3% and the July figure of 13%.

This, combined with underperformance in the last few months amid ongoing global headwinds, prompted UOB Global Economics and Market Research to downgrade its full-year export forecast to 9% contraction from 7% previously.

However, the export contraction “is expected to narrow in 4Q2023 before turning positive from 1Q2024 onwards” driven by a moderately high base effect, a rebound in the global technology cycle and firmer commodity prices.

A pause in global interest rate hikes and a more stable global outlook are potential catalysts for export prospects next year, it added. Malaysia’s exports are seen growing by 3.5% in 2024, the research note said.

The latest decline in exports resulted in a 7.6% year-to-date drop, compared with a 30% increase in the same period last year. Meanwhile, gross imports fell 21.2% y-o-y to RM97.85 billion, mainly due to the decline in imports of intermediate and consumption goods in August.

MIDF Research, meanwhile, maintains its forecast that both exports and imports will decline by 6.4% and 6.9%, respectively, this year.

The research house foresees a better outlook from China’s growth recovery, and the expected recovery in the electrical and electronics sector for the rest of the year.

“On the other hand, we remain cautious that weaker-than-expected global demand particularly from the advanced markets will continue to adversely affect international trade as final demand from these economies may be constrained by the high borrowing costs and tighter credit,” it said.

Imports are also expected to decline as local producers slow down their purchases of inputs and raw materials, it added.

Separately RHB Investment Bank Bhd is cautious on China in 2H2023, but suggests strength in the US economy and the recovery in Asean would likely provide some support to the trade performance.

“We remain cautious on the impact from global technology downcycle as well,” said RHB, which has a full-year export projection of 9.4%