Malaysian export growth to moderate to 5.5% in May
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RAM Ratings expects Malaysia’s export growth to moderate to 5.5% in May 2018 after a strong increase of 14% in April.
The rating agency said in a statement today that this could be partially attributable to a high-base effect from May 2017, when export growth surged 32.4% – the highest level since March 2010.
RAM said the continued decline in imports of intermediate goods also suggests an expectation of a corresponding moderation in external demand growth going ahead.
Meanwhile, the import growth is projected to contract 2.5% in May in anticipation of the deceleration in exports.
“Furthermore, some risk aversion in the lead-up to the 14th General Election may also have caused some hold-back in investments, thereby contributing to the slower pace.”
For May, the trade surplus is estimated to come in lower at RM11.8 billion compared with RM13.1 billion in April.
RAM pointed out that the direct impact arising from the US’s protectionist policies and tariffs on Malaysia’s exports has been limited to date, as exports of affected goods to the US (blanket tariffs on solar panels, washing machines, and steel and aluminium) constituted only 0.8% of Malaysia’s total exports in 2017.
However, it cautioned that the second-round effects from the escalating trade tensions between the US and China, which bears the brunt of most of the American tariffs, will pose a bigger concern to the Malaysian economy.
“Furthermore, some risk aversion in the lead-up to the 14th General Election may also have caused some hold-back in investments, thereby contributing to the slower pace.”
“This ripple effect will be more strongly felt through the global value chain (GVC) and also in global trade and economic growth.”
“Notably, the US tariffs announced have a more far-reaching impact beyond China and have significant spillover effects to the GVC given the intermediate nature of the goods taxed. China’s set of retaliatory tariffs, on the other hand, seemingly target the US specifically,” said RAM head of research Kristina Fong.
Having said that, the research house noted that large trade gains could be derived as US substitutes its demand for imports away from China to other established technology markets, in addition to inward investment gains from American and Chinese firms seeking to bypass these trade tariffs by relocating their operations.
“However, the latter will take time to materialise as firms will require greater certainty in terms of how long and how significant this trade war will turn out to be.”
In the near term, RAM said, significant downside risks may arise from the widespread uncertainty and heftier production costs, primarily for the US, which could in turn affect the current positive global economic momentum through higher unemployment and lower investments.
“Moreover, greater-than-expected inflationary pressure may also spur faster-than-anticipated monetary tightening by the US Federal Reserve, which may further hurt investment and global restocking demand.
“For Malaysia as a small open economy, weak external demand is a clear downside risk to growth momentum; this will require very close monitoring,” the rating agency said.
Questions & Answers
Q.What is causing the anticipated moderation in export growth for Malaysia?
What is causing the anticipated moderation in export growth for Malaysia?
The moderation in export growth is partially attributable to a high-base effect from May 2017, when export growth surged significantly. A continued decline in intermediate goods imports also suggests slowing external demand, and pre-election risk aversion may have caused investment hold-backs.
Q.How significant is the direct impact of US protectionist policies on Malaysia's exports?
How significant is the direct impact of US protectionist policies on Malaysia's exports?
The direct impact has been limited to date, as exports of affected goods to the US constituted only 0.8% of Malaysia's total exports in 2017. These affected goods include solar panels, washing machines, steel, and aluminium.
Q.What is considered a bigger concern for Malaysia regarding the trade tensions?
What is considered a bigger concern for Malaysia regarding the trade tensions?
The second-round effects from escalating trade tensions between the US and China pose a bigger concern. This ripple effect is expected to be felt more strongly through the global value chain, global trade, and economic growth.
Q.What potential benefits might Malaysia see despite global trade tensions?
What potential benefits might Malaysia see despite global trade tensions?
Malaysia could derive large trade gains if the US substitutes its demand for imports away from China to other established technology markets. Inward investment gains are also possible from American and Chinese firms relocating operations to bypass tariffs.
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