By G. Sharmila
Malaysia’s exports are expected to remain challenged going forward due to unstable global demand and weak commodity prices, economists said.
“Expect exports to remain challenged by still unstable global demand due to an uneven state of economic strength in major advanced economies and emerging economies. Persistent low global crude oil prices and moderate palm oil prices would remain a drag on export growth. I expect export growth to end 2015 at 2.3% before improving to 2.9% in 2016,” independent economist Lee Heng Guie told KINIBIZ via e-mail.
OCBC Bank economist Wellian Wiranto, concurred. “We think global trade flows would remain challenged, and hence Malaysia’s exports performance would inevitably be affected. Soft commodity prices would continue to be a deadweight, although it is important to bear in mind that Malaysia’s electronics manufacturing sector plays a crucial counter-balancing role at this juncture.
Crucially, electronics command around a quarter of total exports, compared to LNG (liquid natural gas) with just around 5% share, for instance,” he told KINIBIZ via e-mail.
Commenting on the impact of a slowdown in China on Malaysia’s trade performance, Lee noted that Malaysia’s exports to China have been uneven since 2012, reflecting the impact of weakening Chinese economy.
“After contracting 4.8% in 2014, Malaysia’s export growth to China grew 9.7% year-on-year in the nine months of 2015, aided partly by the weakening of ringgit against the Chinese renminbi. In 2015, the ringgit was down by almost 15% against the renminbi,” he pointed out.
“With China being the second largest export market for Malaysia (13% of Malaysia’s total exports), a sharp slowdown in China growth would hurt our export growth even more as the bulk of intra-regional exports still consist of the shipment of components among linked production sites. A 1% change in China’s GDP growth could shave 0.2% pts off Malaysia exports as well as 0.3% pts off GDP growth,” he said.
According to Lee, the sectors and products that will be hit by slower Chinese demand are electronics and electrical products, chemical and chemical products, resource and energy commodity as well as the suppliers of resource-based raw materials.
“The tourism sector too will be affected by restrained travelling and spending abroad by Chinese tourists, which make up 6% total tourists arrival in Malaysia,” he said.
OCBC’s Wellian noted that China is an important destination for Malaysia’s exports, with about one-in-eight proportion of total exports going there.
“Hence, naturally, in any marked and protracted slowdown there is something to be reckoned with, and is just one factor why we think it has gotten a lot harder to talk effusively about Malaysia’s export prospects in the near term,” he said.
Asked what other domestic and external headwinds could impact Malaysia’s trade performance going forward, Wellian said: “As we touched on earlier, as long as global economy remains mired in an air of malaise, the global trade flows are going to be negatively impacted – putting a dampener on Malaysia’s performance too.”
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