This article first appeared in The Edge Financial Daily on June 4, 2019

KUALA LUMPUR: Malaysia’s exports in April 2019 have marginally rebounded after registering two consecutive year-on-year declines since February.

The ministry of international trade and industry (Miti) announced that exports grew by 1.1% to RM85.2 billion in April.

The value of export is the highest export value ever recorded for the month of April.

The growth was fuelled by higher exports of manufactured goods — which accounted for 85.1% of total exports — that expanded by 2.7%, due to higher exports of electrical and electronics (E&E) products, petroleum products, optical and scientific equipment, iron and steel products as well as processed food, according to Miti.

While some, for instance Nomura Research, believe in the trade diversion that will drive up export volume, however others hold a gloomier view on the export growth against the backdrop of escalating trade tension between China and the US.

UOB Malaysia senior economist Julia Goh highlighted that the improvement in the overall exports in April was in sync with other signs of recovery in trade and demand at the start of the second quarter as talks between the US and China was still constructive.

However, she pointed to the change of situation when trade talks broke down in early May, where the US raised tariffs on US$200 billion worth of Chinese imports into the US. In retaliation, China also imposed higher tariffs on US$60 billion of US goods which will take effect on Monday.

Furthermore, US President Donald Trump plans to impose a 5% tariff on Mexican goods and he also announced the removal of India and Turkey from the Generalised System of Preferences programme.

“All these news developments set a tone that the global trade tension is only escalating, which will then affect global demand.

“At this juncture, it looks like if the uncertainty prolongs, there will be more downside risks to Malaysia’s exports for the second half of the year (2H19) ,” Goh told The Edge Financial Daily.

Goh noted that UOB Malaysia’s initial full-year export growth forecast of 4% to 5% is premised on a recovery in 2H19. However, she said the recent turn of events — escalating global trade tension — may result in a cut of that forecast.

Affin Hwang Investment Bank Bhd chief economist Alan Tan, on the other hand, commented that export figures continue to show decent demand for E&E products, which reflects that Malaysia may have actually benefitted from the trade tension by way of import substitution.

This means that companies that are affected by higher tariffs between US and China, may have reallocated their sources to import from other countries, in this case, Malaysia.

At an average contraction of 0.4% for the first four months of 2019, Tan expects Malaysia’s export growth to be better in 2H19 as he anticipates US and China to come to some form of trade compromise.

He sees that China’s stimulative measures in 2019 will provide some support for its economic growth this year, while the US economy will continue to be supported by its domestic demand.

“As long as the trade rifts do not escalate into a full-blown trade war, Malaysia’s export numbers will continue to hold up,” he told The Edge Financial Daily.

Still, Tan forecast 2% for Malaysia’s export growth in 2019, expecting the trade surplus to contract to RM110 billion.