KUALA LUMPUR (June 24): Malaysia’s trade surplus would remain subdued in the coming months amid weakening exports while imports stay strong from demand for capital goods, the Australia and New Zealand Banking Group (ANZ) said.

After a rush to beat tariffs, strength of export to the US is fading while external demand from key Asian partners is weakening, ANZ said in a note. Shipments of manufactured goods and commodity products are declining, a trend corroborated by broader manufacturing indicators, the house said.

“However, the strength of capital goods imports, underpinned by structural infrastructure investments, suggests continued resilience in public sector-driven domestic demand,” ANZ said. “As a result, the trade surplus is likely to remain subdued in the near term.”

Malaysia has maintained an unbroken trade surplus for nearly three decades, mostly thanks to its sprawling export-oriented factories churning out electrical and electronics goods.

However, the trade surplus narrowed to RM766.3 million in May, its second lowest since 1997, as exports dipped for the first time this year. Gross imports meanwhile climbed amid a surge in inbound capital goods.

The spike in capital goods imports is in line with robust public-sector investment, ANZ said, noting an 11% expansion in public gross fixed capital formation in 2024 — the strongest growth since 2012 — that was accompanied by a 30% increase in capital goods imports.

The investment is largely driven by infrastructure development, including major projects such as the Rapid Transit System Link and the Penang Light Rail Transit, while rising demand for data centres is also contributing to sustained growth in construction-related capital imports, the house said.

Imports of intermediate goods, which represent more than half of total imports and a key indicator of future production activity, meanwhile fell over 3% in May while consumption goods were down 0.8%.

“Their decline suggests a likely moderation in both domestic and external demand,” ANZ added.