This article first appeared in The Edge Financial Daily on November 5, 2019

KUALA LUMPUR: Malaysia, in September, suffered its steepest drop in exports in 35 months as all major sectors weakened, and seemingly there is little to cheer about going forward.

The second successive month of contraction — down 6.8% year-on-year (y-o-y) — was much worse than consensus projections of a flattish growth, amid a shorter working month and a new US tariff of 15% on US$110 billion worth of Chinese products effective Sept 1.

MIDF Research’s economists believe the outlook for the fourth quarter of 2019 (4Q19) is expected to be “cloudy”. Export growth in October is unlikely to be impressive. Besides, a continuous decline in imports of capital and intermediate goods indicates weak prospects for future exports.

“The higher-base effect, particularly from October 2018, would influence the overall performance in 4Q19.

“With faltering trade globally derived from rising protectionism and the loss of momentum in some major economies, especially in Europe, we do not foresee a huge comeback in 2H19 (the second half of 2019),” said the research house, although it sees commodity-based sector products, particularly exports of liquefied natural gas, to offset the less favourable impact in 2H19.

UOB Malaysia senior economist Julia Goh remains cautious about the outlook for exports not just for the remaining months of the year, but also into 2020, as leading indicators point to subdued external demand and slowing global growth.

Further, there is still a long way towards a full resolution on outstanding issues such as technology transfer and intellectual property rights, although the US and China are expected to sign a “Phase One” trade deal this month, she added.

“While the global manufacturing PMI (Purchasing Managers’ Index) for October had yet to be released, the US Institute of Supply Management’s manufacturing PMI continued to stay in contraction territory despite improving to 48.3 in October (from September’s 47.8). The same goes for Malaysia’s manufacturing PMI, edging up to 49.3 in October (from September’s 47.9).

“We maintain our 2019 full-year forecast for exports at -1% (from 2018’s +7.3%),” Goh said.

Goh pointed out exports tumbled 1.7% y-o-y and imports shrank 3.3% y-o-y in the first nine months of 2019, resulting in a trade surplus of RM100.8 billion, 15.3% higher than that of a year ago. “This will also underpin a firm current account surplus for the whole of 2019.”

For 2020, RHB Research economist Ahmad Nazmi Idrus expects growth to ease further to 1.5%, from 2.2% estimated for 2019, as downside risks from the ongoing US-China trade tensions outweigh an improvement in semiconductor sales globally.

Meanwhile, the weak trade report released yesterday lifted the odds of a Bank Negara Malaysia overnight policy rate cut, according to ING Think, whose view is bucking the consensus of a stable policy at the Monetary Policy Committee’s final meeting for the year.

“The electronic export vigour observed earlier in the year has ended. And with continued external headwinds, downside growth risks are growing. We expect a 25bps (basis points) BNM rate cut tomorrow (today),” its economist Prakash Sakpal said.

The Department of Statistics Malaysia (DoSM) yesterday announced Malaysia’s exports decreased 6.8% y-o-y to RM77.7 billion in September 2019. The total trade, valued at RM147.1 billion, decreased RM4 billion or 2.7% compared with that in September 2018.

Exports of electrical and electronic products saw the sharpest fall (RM4.1 billion), followed by crude petroleum (RM1.2 billion) and refined petroleum products (RM805.1 million), DoSM data showed.

“Re-exports were valued at RM12.7 billion, down 17.6% y-o-y and accounted for 16.3% of total exports. Domestic exports also declined 2.9% (RM2 billion) to RM65 billion,” said chief statistician Datuk Seri Dr Mohd Uzir Mahidin in a statement.

However, imports rose 2.4% y-o-y to RM69.4 billion during the month, the first time in four months.