Thursday 28 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on February 7, 2022 - February 13, 2022

MALAYSIA’s trade numbers hit an all-time-high in 2021, but economists do not expect a repeat this year, owing to higher inflation and slowing growth in the economies of its major trading partners.

The country’s exports, imports and trade surplus saw impressive growth last year. Its total trade rebounded 24.8% year on year (y-o-y) to RM2.23 trillion after registering two years of contraction, marking a new milestone as it was the first time the trade figure breached the RM2 trillion mark.

To break this down further, exports grew 26% y-o-y to RM1.24 trillion, while imports rose 23.3% to RM987.24 billion. This resulted in a trade surplus of RM252.56 billion, a y-o-y increase of 37.7%.

Nevertheless, the economists The Edge spoke to expect export growth to moderate to 2% to 10% this year. Sunway University economics professor Dr Yeah Kim Leng, for one, projects growth moderating to 5%.

“After hitting a 23-year high of a 26% rise in 2021, Malaysia’s gross merchandise exports are projected to increase 5% to RM1.3 trillion this year on the back of a more moderate global growth, easing of production constraints and supply chain disruptions as well as sustained commodity prices,” he tells The Edge.

“Imports, which grew 23.3% in 2021, are projected to expand 6.3% in tandem with the rise in imported intermediate inputs for export production and higher imports of consumer and capital goods, in line with the expected strengthening of domestic consumption and investment activities this year.”

He adds that lingering risks from the Covid-19 pandemic, especially if it triggers the reimposition of stringent movement restrictions in the country, as well as in Malaysia’s trading partners, could derail the current trajectory towards normalisation of social and economic activities, including the resumption of cross-border travel.

“The other major risk is the rising inflation threat facing developed economies that may elicit overly aggressive monetary policy responses that could disrupt financial markets and capital flows, and eventually dampen economic growth. A global growth slowdown inevitably leads to lower global trade,” says Yeah.

“Overly aggressive interest rate hikes by the US Federal Reserve could dampen growth. An overcorrection in financial markets could also transmit income shocks and lower consumption through negative wealth effects. With more than two-thirds of the US and other advanced economies being driven by consumption, there will be knock-on effects on imports, thereby impacting Malaysia’s trade outlook for this year.”

Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid has a more bullish forecast of 10% export growth. “This will be driven by the exports of electrical and electronic (E&E) goods, rubber gloves as well as commodity-based products such as palm oil, petroleum products and liquefied natural gas (LNG),” he tells The Edge.

“We are projecting total imports to grow 12% this year. This will be driven by imports of intermediate, consumption and capital goods.”

However, disruption in the global supply chain is expected to be the key risk for global trade, says Afzanizam. “Already port congestions have been widely reported across the globe. This will have a significant impact on efficiencies and costs given that the bulk of international trade is seaborne, which is said to be about 90%.”

Higher interest rates are another risk, he adds, as these would lead to slower export growth due to increased borrowing costs that could discourage investment spending.

“Therefore, it could result in moderation of growth. The International Monetary Fund also recently revised its global GDP forecast lower to 4.4% in 2022 from the previous estimate of 4.9%, citing normalisation of US monetary policy as one of the key factors,” says Afzanizam.

“While higher interest rates have always had a negative connotation, these could also mean that economic recovery has occurred in a convincing way, which warrants the removal of policy support. In other words, the economy has gained momentum and the recovery has become self-sustaining.

“In the case of US interest rates, its economy was growing above trend last year at 5.7% after experiencing a 3.4% contraction in the year before. Similarly, the unemployment rate had declined significantly to 3.9% in December 2021 from 14.7% in April 2020.”

UOB Malaysia senior economist Julia Goh and economist Loke Siew Ting emphasise that the trade outlook is being clouded by ongoing challenges, which include dealing with the Omicron variant and other potential new variants of Covid-19, supply chain bottlenecks, a slowing Chinese economy and tighter global financial conditions.

“Furthermore, high year-ago base effects and resource constraints amid domestic worker shortages and high cost pressures could curtail export gains to 2% this year. [But] the Regional Comprehensive Economic Partnership (RCEP) agreement, which will [take effect] in Malaysia from March 18 following the submission of ratification on Jan 17, should provide upside potential for the country’s exports,” they say in a note.

On whether free trade agreements such as the RCEP and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) are game changers for Malaysian exports, Yeah says these agreements may not immediately boost exports this year but they provide a catalyst for increased trade opportunities, owing to lower tariffs and enhanced trade facilitation among the member countries.

“These agreements are akin to tailwinds that will enhance Malaysia’s trade performance over the next few years as exporters and importers respond to improved access and incentives,” he adds.

According to data provided by Malaysia External Trade Development Corporation (Matrade), E&E products made up RM455.73 billion, or 36.8%, of the country’s exports last year while petroleum products amounted to RM95.66 billion (7.7%), chemicals and chemical products RM70.68 billion (5.7%), palm oil RM64.62 billion (5.2%) and rubber products RM64.61 billion (5.2%).

As for Malaysia’s major trading partners, exports to Asean constituted 27.7% of its total exports, which bounced 25.9% to RM343.62 billion owing to higher exports of E&E products, petroleum products, chemicals and chemical products, manufactures of metal as well as machinery, equipment and parts. Singapore was Malaysia’s largest trading partner in Asean last year, with exports amounting to RM173.39 billion, followed by Thailand (RM52.4 billion) and Vietnam (RM45.5 billion).

Meanwhile, exports to China — Malaysia’s largest trading partner — rose 20.6% in 2021 to RM192.05 billion, the highest value thus far. The expansion was driven by strong exports of manufactures of metal, E&E products as well as LNG.

Exports to the US — the country’s third largest trading partner — registered a double-digit growth of 30.4% to RM142.24 billion. The expansion was supported mainly by exports of manufactured goods, which increased 30.9% to RM139.33 billion and accounted for 98% of Malaysia’s total exports to the US. This was backed by higher exports of E&E products, rubber products, manufactures of metal, machinery, equipment and parts as well as optical and scientific equipment.

 

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