KUALA LUMPUR (March 27): Malaysia’s exports growth will likely soften to 3.4% in 2019 from 6.8% last year, in line with the more moderate global economy expansion and trade activity, according to Bank Negara Malaysia (BNM).

In its 2018 annual report, the central bank said the country’s exports will be significantly impacted by the ongoing US-China trade tensions, as this could directly lower demand from affected countries, and slow down production in global value chains.

Furthermore, lower mineral prices and crude oil production are expected to more than offset the increase in liquefied natural gas and crude palm oil output, therefore resulting in continued contraction in commodity exports, it said.

BNM, however, sees a slight offsetting effect in 0.1 to 0.4 percentage points, from trade diversion of US’ imports away from China to Malaysia. These are for products that currently account for a significant share of the US import market, and for manufacturers who have the capacity to ramp up production.

Other mitigating factors include sustained demand from emerging economies especially in Asean, as well as positive growth in manufactured exports, which will help cushion the impact of the expected decline in commodity exports.

Due to moderating demand from key trade partners, manufactured exports are projected to expand by 4.8% in 2019, compared with 9.1% in 2018.