UOB Global Economics & Markets Research, in a separate note, wrote that October’s export contraction — the second straight month to a single-digit — indicates “a strong signal that the worst may be behind us”.
KUALA LUMPUR (Nov 20): Economists are now expecting Malaysia's 2023 exports to decline less than they originally anticipated, following the stronger-than-anticipated October trade data released on Monday, as they see a smaller contraction in the fourth quarter of the year — driven by the positive turnaround in the electrical and electronics (E&E) sector, and China's recovery.
RHB Investment Bank Bhd expects the country's 2023 export performance to decline by 7.3% year-on-year (y-o-y), compared with its previous forecast of a 9.4% contraction.
"The stronger-than-expected October data and improvement in trade momentum in recent months have confirmed our expectation that there are early signs of trade recovery. We have begun to see signs of bottoming out for both exports and imports data. Higher outbound shipments were observed to major destinations, including China. We maintain our earlier expectation that there would be a smaller contraction in export data by 4Q23, with the potential of export data to turn positive by 1Q2024," it said in a note on Monday.
"Similarly, the rising trend of capital and intermediate goods imports also signalled the potential expansion in manufacturing activities in upcoming months," the research house added.
"We expect the export momentum to further pick up by 1H2024, predicated on three main factors, ie (1) a rosier global and regional economic outlook, (2) recovery in the global technology cycle, and (3) the recovery in China’s economy. We see more signs of dissipation in the downside risks, ie the global technology cycle downturn might [be] close to the end, and there are early signs of recovery in China's economy," it added.
Malaysia’s exports contracted by 4.4% y-o-y to RM126.2 billion in October, led by a drop in petroleum products, liquefied natural gas, E&E products, crude petroleum and palm oil-based manufactured products, according to the Department of Statistics Malaysia (DOSM).
However, on a month-on-month comparison, export contraction improved in October, compared to a decline of 18.6% in August, and 13.8% in September. The October figure also exceeded Bloomberg's consensus forecast of a 5% contraction. The DOSM data showed that the year-to-date export performance (January to October), fell 8% to RM2.2 trillion from RM2.4 trillion.
UOB Global Economics & Markets Research, in a separate note, wrote that October's export contraction — the second straight month to a single-digit — indicates "a strong signal that the worst may be behind us".
"October’s export performance came after all three export sectors penciled in improvements, with exports of agriculture goods posting the first gain in 13 months. Exports of manufactured goods registered a smaller contraction following a turnaround in shipments of manufactures of metal; optical & scientific equipment; and machinery, equipment & parts. Exports of mining goods fell at a slower pace after the contraction in shipments of liquefied natural gas (LNG) tapered off. Demand also improved across almost all export destinations, with the US, Hong Kong, South Korea and India posting a positive increase," UOB noted.
As such, and given the year-to-date export performance of a contraction of 8% in the January to October period, in addition to signs of a further recovery in the global tech cycle amid expectations of a soft landing in the global economy, UOB revised its 2023 full-year export forecast to a decline of 7.2% — from a contraction of 9% previously. The Ministry of Finance has estimated a contraction of 7.8% for this year, following 2022's 24.9% export growth.
"For 2024, we maintain our export outlook at +3.5% (MOF estimate: +5.1%) in view of lingering downside risks including tensions in the Middle East, tighter financial and monetary conditions for a prolonged period, persistent property sector drag on China’s economy and ongoing US-China trade conflicts," UOB added.
MIDF Research, which has a more optimistic forecast that exports will fall by 6.4% this year, kept to its forecast.
“There is an upside bias such as a stronger recovery in China and a better turnaround in E&E trade that will make the full-year decline not as steep as we estimated.... We foresee external trade will continue to recover and this will support exports and imports to rebound next year,” MIDF said in another note.