KUALA LUMPUR: The slower pace of export growth looks set to persist even as a weaker ringgit makes Malaysian-made goods more competitive, no thanks to commodity price weakness and falling export demand, said economists.

They predict Malaysia’s exports in the second half of this year to grow at 1% to 3%.

Malaysian exports in May declined 6.7% to RM60.5 billion from RM64.82 billion a year ago, largely due to a decline in exports to Japan and Australia, and a decline in shipments of liquefied natural gas (LNG).

“The weaker ringgit will not really benefit Malaysia as firstly, our mainstay of export products, that is electrical and electronics (E&E), is 50% to 60% dependent on imported components and trading in E&E exports would always be settled in US dollar,” MIDF Amanah Investment Bank chief economist Maslynnawati Ahmad told DigitalEdge Daily.

“Secondly, unlike in the past where a weaker ringgit would usually translate into higher commodity export receipts, this time, the declining commodity prices as well as falling export demand are putting a drag on the commodity export receipts,” she said.

Maslynnawati also cautioned that China’s economic performance will be the wild card for Malaysia’s export performance going forward.

“Although we are a net importer with China, if our exports to China continue to dwindle and our imports from that country continue to hold up well, that would cause our net trade position to worsen,” she added.

Kenanga Investment Bank Bhd economist and deputy head of research Wan Suhaimie Saidie said the weak commodity prices are expected to be a drag on overall export growth, which he projects at 2.2% for 2015.

“This is because commodities, E&E as well as export demand are not forthcoming. Exports need to go very far into the positive territory in order to achieve 6% to 7% growth for the rest of the year,” he added.

Former CIMB Investment Bank Bhd chief economist Lee Heng Guie said the falling export demand is a concern due to the impact that it has on the country’s current account surplus.

“Lower investment activity also puts a lot of pressure on the current account. Next year will still be a challenging year for the economy because commodity prices are not stabilising.

“Oil prices were expected to improve, but are now retesting new lows. There’s pressure on both oil prices and LNG,” he said.

Lee added that while exports of E&E products may “somewhat improve”, the weak global demand is nevertheless unfavourable.

“Domestic uncertainty relating to the 1Malaysia Development Bhd issue is also a problem that needs to be resolved as soon as possible,” he noted.

M&A Securities Sdn Bhd head of research Rosnani Rasul does not see commodity prices making a “big U-turn” anytime soon.

“Unless and until prices improve, there is only so much [that can be done] to increase production,” she said, adding that her export growth projection of 2% to 3% is in line with the government’s expectations.

An economist, who declined to be named, is predicting Malaysia’s 2015 export growth to be at 1.2% due to weaker trade in China and the eurozone.

Meanwhile, another economist said moderating export growth is not necessarily a sign of Malaysia’s declining competitiveness or lack of desirability for Malaysian goods and industries.

“It isn’t that our exports have become less competitive, but that export performance has been hurt by external conditions, such as advanced economies not growing as fast as we hope, and China has been bearing the brunt of the slowdown in the eurozone,” he said.

“Only the US is holding up well, but that is no longer our main export market. As for export volume, demand is very weak and we see it continue to be weak throughout the year,” the economist added.

International Trade and Industry Minister Datuk Seri Mustapa Mohamed in February said the country’s exports are poised to see a moderate growth of between 2% and 3% in 2015, significantly lower than the 6.4% achieved last year.

This is due to the weakening global economy, uncertainty in currency markets, decline in oil prices and likely continued modest growth in terms of commodity prices, which limit sharp uptrends, Mustapa added.

At last Friday’s close, Reuters reported that the benchmark palm oil contract for October was down 0.19% at RM2,118 a tonne on the Bursa Malaysia Derivatives Exchange. Last Thursday, the contract hit its lowest level since April 30, at RM2,099.

The ringgit also stayed near a 17-year trough last Friday, weakening 0.2% to 3.8250 a US dollar. It fell to 3.8260 last month, the lowest since 1998, during the Asian financial crisis.

This article first appeared in Digital Edge Daily, on August 3, 2015.