This article first appeared in The Edge Malaysia Weekly on November 27, 2023 - December 3, 2023

MALAYSIA’s export performance is looking less gloomy based on the external trade numbers released last week. October’s external trade data showed a marked improvement in the export numbers, which contracted only 4.4% year on year (y-o-y) compared with 13.8% in September and 18.7% in August.

Exports and imports had contracted for eight consecutive months.

The smaller contraction in exports came about as manufactured goods and mining exports saw a smaller decline in October, at -3.5% and -22% y-o-y respectively. Agricultural exports turned the corner, registering a growth of 3.3% y-o-y in October — the first expansion seen after 12 months of contraction.

The downtick in imports also slowed in October to -0.2% y-o-y from -11.1% in September and -21.2% in August.

Many economists see the better-than-expected export numbers as the green shoots of recovery in trade. They had forecast that exports would shrink 5% in October.

“We have begun to see signs of bottoming out in both the exports and imports data. Higher outbound shipments were observed to major destinations, including China,” says RHB Research.

The research house expects to see a smaller reduction in the export data by 4Q2023 and opines that exports have the potential to return to growth by 1Q2024. It revised upwards its 2023 export forecast to a lower contraction of 7.3% y-o-y from 9.4% previously.

The better-than-expected October export numbers augur well for the fourth quarter gross domestic product, says Maybank Investment Bank Research, in terms of a further pick-up in growth after the 3.3% y-o-y GDP growth in 3Q2023.

“Our full-year GDP growth forecast of 3.9% for 2023 [will] be followed by 4.4% in 2024 which, among others, is predicated on the expected rebound in external trade, export and import growth of 4.7% and 5.6% in 2024 after the estimated 8% and 7.5% shrinkage in 2023,” says Maybank IB Research in a Nov 22 note.

It is worth noting that Malaysia’s manufactured exports make up roughly 85% of total exports. The key component of the manufactured exports segment is electrical and electronics (E&E), which made up close to 40% of total exports in the last 10 months.

In October, exports of E&E products fell 2.3% y-o-y, an improvement compared to the decline of 5.6% in September and 15.5% in August.

MIDF Research expects the improvement in E&E exports to be the main contributor to external trade recovery in the coming months, supported by improved global semiconductor sales.

According to global microelectronics association SEMI, electronic sales are forecast to register a 22% quarter-on-quarter increase in 4Q2023. It also said in a recent release that integrated circuit sales are expected to grow 4% sequentially after improving 7% in 3Q2023 as demand grew and inventories normalised.

An Oct 26 sector report by AmInvestment Research says the decline in orders for the semiconductor segment will bottom out in 3Q2023 as companies gradually secure more orders for 4Q2023. It adds that many companies are cautiously optimistic with a modest recovery outlook.

This view is consistent with what many in the industry are experiencing.

A player in the automated test equipment industry says orders for semiconductor equipment have indeed picked up significantly in the last two months. However, it is not happening across the board for the semiconductor industry, he notes.

“Not all segments of the semiconductor industry have reached bottom. There is no upward swing in the mobile communication segment yet; it has likely abated to a flattish trend now. As for memory chips, the segment has started to see an upswing based on the 3Q2023 results announcements of major memory chip manufacturers,” the player says.

Samsung Electronics saw a 262% q-o-q improvement in its earnings for 3Q2023 although the earnings were still down y-o-y. Samsung is the largest memory chip manufacturer in the world.

However, meaningful recovery might still take time before it happens.

“The ‘U’ curve recovery is not happening as fast as people had expected and I believe the recovery will take a while. Some think it might happen only in 2H2024 while others are more conservative, saying it will only happen in 2025. Having said that, the worst is over for the sector,” notes an analyst covering semiconductors.

Growth in most of the semiconductor segment will take place from 2H2024, based on the strength of China’s demand, says another player in the industry.

CGS-CIMB Research expects to see more material improvement in E&E exports happening early next year. “We believe that with global semiconductor sales recording a single-digit contraction y-o-y in September, demand improvement in the sector could be on the cards. We anticipate Malaysia’s exports to progressively increase in 2024F amid better international trade conditions, with export growth likely turning positive by early 2024,” it says in a Nov 21 report.

The World Semiconductor Trade Statistics (WSTS) is expecting an 11.8% rebound in semiconductor sales in 2024 from the estimated decline of 10.3% in 2023.

As E&E products constitute a significant portion of Malaysia’s exports, the hope is that a rebound in the segment will lift total exports in 2024.

Exports seem to be turning around regionally as well. In Indonesia, whose main exports are commodities — palm oil, coal and nickel — exports remained in double-digit contraction mode in October — -10.43% y-o-y. Nonetheless, it had softened from September’s -16.23% and August’s -21.24%.

Singapore, like Malaysia, has broken free of the double-digit contraction trend in exports. In October, it recorded a 3.4% reduction in non-oil domestic exports, compared with -13.2% y-o-y in September and -22.5% in August.

The city state’s main exports from its electronics sector are integrated circuits.

Meanwhile, Thailand and Vietnam have turned the corner when it comes to their export numbers.

Thailand’s most recently published export data was for September, which showed exports growing 2.1% y-o-y. Its exports had started to increase again in August, expanding 2.6% y-o-y after 10 months of contraction.

The country has a strong semiconductor industry and is known as the largest production base for electrical appliances and a manufacturing hub for motor vehicles in the region.

Vietnam’s exports began to increase in September, growing 4.6% y-o-y and expanding further by 5.9% y-o-y in October. This country too had seen its exports shrink  for the most part of the year before registering growth in September.

Its main exports are E&E components as well as machines, equipment, tools and instruments. It is also a big exporter of textiles, garments and footwear.

While there has been a recovery in E&E trade activity across the region, economists and analysts caution that the deterioration in the US-China relationship could stand in the way. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.