22-5-2023 (Kuala Lumpur) Economists have downgraded Malaysia’s full-year export forecasts following a sharper-than-expected decline in exports in April. UOB Global Economics and Market Research stated on Friday that the year-to-date export contraction of 2.6 percent in Malaysia indicates that their previous projection of 1.5 percent export growth for 2023 is no longer viable.
Due to ongoing threats to the export outlook and the anticipated negative impact of base effects in the coming months, the research institution has adjusted Malaysia’s 2023 full-year export growth projection to -7 percent. This stands in contrast to the 25 percent surge in exports witnessed in 2022 and the Central Bank of Malaysia’s projection of 1.5 percent export growth for 2023.
The UOB highlights several downside risks to Malaysia’s exports, including geopolitical tensions, potential financial instability resulting from monetary policy tightening, and a significant slowdown in advanced economies. The research institution believes that exports may continue to stagnate as global growth prospects diminish in the second half of the year.
In April, Malaysia experienced a second consecutive month of export decline, with a significant year-on-year contraction of 17.4 percent, marking the sharpest decline since October 2022. Factors contributing to this decline include a shorter working month, high base effects from the previous year, lower earnings from commodity prices, and subdued global growth prospects. The actual figures were worse than the UOB estimate of -2.5 percent.
The steeper-than-expected contraction in April affected all three economic sectors and nearly all products, except for refined petroleum products. Meanwhile, Kenanga Research, in a note released on May 22, downgraded Malaysia’s 2023 export forecast to -4.2 percent from 5.8 percent. The research institution believes there is a high probability of further contraction in exports in the near term, given the weaker-than-expected trade performance in April and the subdued year-to-date performance.
Kenanga attributes this potential contraction to the high base recorded last year, coupled with lower commodity prices and the normalization of economic activities. Tighter financial conditions resulting from aggressive monetary policy tightening in advanced economies to combat inflation further contribute to the negative outlook. However, Kenanga maintains its 2023 gross domestic product (GDP) growth forecast for Malaysia at 4.7 percent, anticipating that domestic demand, driven by tourism recovery, a stable labor market, and expansion in the services sector, will offset the slack in commodity-related and export-oriented manufacturing sectors.
MIDF Research, considering the recent weakness in trade numbers in April, has also revised down Malaysia’s full-year growth forecast for exports to -3.4 percent and imports to -1.9 percent. The research institution believes that weak global demand, particularly for manufactured goods, coupled with limited upward price pressures and a high base, will result in slower external trade performance in 2023. Lower commodity prices are expected to continue affecting resource-based exports in the coming months. Additionally, the trade outlook may further weaken if global inflation remains high, central banks continue tightening monetary policy, and geopolitical risks escalate.
Despite the challenges in external trade, MIDF Research expects Malaysia’s economic growth to remain positive, driven by sustained growth in domestic demand, supported by positive consumer spending and a favorable job market. Affin Hwang Investment Bank shares a similar sentiment, expressing uncertainty regarding Malaysia’s external demand in the near term due to lower global market demand, particularly from advanced economies. While lower demand from these economies may drag on Malaysia’s exports, increased exports to China, accounting for a quarter of total regional exports, could provide some support to intra-regional trade.
Nevertheless, the research institution anticipates weak global semiconductor demand due to supply-demand imbalances, which will negatively impact Malaysia’s overall trade performance given the significance of the electrical and electronics (E&E) industry in the country’s exports. Affin Hwang Investment Bank maintains its projection of Malaysia’s real GDP growth slowing to 3.7 percent in 2023, compared to 8.7 percent in 2022.
