KUALA LUMPUR (Sept 19): The 50-basis-point (bps) policy rate cut by the US Federal Reserve early on Wednesday is expected to stimulate domestic consumption in the US and keep its economy from slowing too rapidly.

This will in turn support Malaysia’s exports, which has seen sustained recovery in recent months.

On Wednesday, the Department of Statistics (DOSM) released Malaysia’s August trade data, which saw exports continue to grow at a double-digit rate, fuelled by higher shipments of manufactured and agricultural goods.

“Given the ‘good strong start’ to the Fed’s rate-cutting cycle and commitment to its dual mandate of pursuing maximum employment and inflation stability, we expect the US economy to stay on track for a soft landing,” said UOB Global Economics and Market Research in a note on Wednesday.

“This further supports our positive view for the ongoing recovery in E&E [electrical and electronics] exports alongside the global tech upcycle and robust demand for non-E&E products amid a continuation of favourable base effects,” said the research firm.  

The S&P Global Purchasing Manufacturing Index (PMI) survey for Malaysia for the month of August showed that new export orders remained in expansion mode for the fifth consecutive month.

Hence, further monetary easing by central banks will help loosen global financial conditions and safeguard economic resilience, noted UOB Global Economic and Markets Research.

Malaysia’s August data showed that exports continue to grow at double-digit to 12.1% year-on-year (y-o-y) or RM129.16 billion, compared to RM115.18 billion, beating consensus estimates from both Bloomberg and Reuters. 

Both Bloomberg and Reuters estimated the country’s export to grow by 11.8%. 

The 12.1% growth in August maintained the 12.3% rise in July.

UOB Global Economics and Markets Research said August's export figure also surpassed its estimates of 11.5%, partly due to year-ago low base effects.

“Malaysia’s sustained export growth for the fifth straight month and double-digit gains in July and August translated to year-to-date (YTD) export growth at 6%, and well placed to attain our full-year target of 7.6%,” it said.

Previously, Bank Negara Malaysia had projected the country's exports to grow by 5% in 2024, following an 8% contraction in 2023.

Commenting on August's export performance, UOB Global Economics and Markets Research said export growth was primarily supported by higher shipments of manufactured goods (such as E&E, chemicals & chemical products and processed food) and agriculture goods, which fully offset the drag from mining goods exports.

Improving demand was largely seen from top trading partners such as Greater China, Taiwan, the US and Singapore, which helped to cushion the decline in exports to Japan and several Asean economies like Vietnam and the Philippines, said the research firm.  

Given the stronger trade performance so far this year, MIDF Research said there are potential upward revisions for its forecasts.

The research firm's optimistic view is premised on the recovery in the E&E sector seems to be picking up pace, alongside increased demand for other export commodities.

The robust domestic economic activities have also resulted in continued strong growth in imports, it said.

In addition, given the encouraging outlook for the domestic economy, this could be sustained in the coming months, said MIDF Research.

MIDF Research is keeping its 2024 projection with exports growing 5.2% in 2024 and imports expanding to 11.2%. Imports contracted 6.4% y-o-y to RM1.21 trillion in 2023.

Gross imports in August rose 26.2% y-o-y to RM123.49 billion, from RM97.85 billion a year ago. Inbound deliveries of intermediate goods, such as automotive parts and electronic components, climbed 40.4% y-o-y in Aug. Meanwhile, capital goods imports grew 39.6% while consumption goods were up 21.2%.

Between January and August this year, imports surged by 16.8%, compared to an 8.7% contraction in the same period last year. 

As imports rose at a faster pace than exports, the resulting trade surplus narrowed 67.3% y-o-y to RM5.67 billion in August 2024, from RM17.31 billion previously.

On a month-on-month basis, exports slipped 1.5% while imports were 1% lower and trade surplus narrowed 11.5%.

Meanwhile, RHB Research said the resilient trade data for both July and August has reinforced its optimistic outlook on Malaysia’s gross domestic product (GDP) to grow 5.2% y-o-y in the third quarter this year.  

“We expect both external and internal drivers to drive growth for the remainder of the year, with further upsides in trade and manufacturing activities, alongside sustained domestic demand from rising consumer and investment spending,” it said.  

RHB Research said export-oriented sectors, such as E&E, energy, and metal goods, will continue to thrive due to resilient economic growth momentum in major economies, a resurgence in the global technology cycle, and robust commodity prices.