Malaysia’s November export growth expected to slow to 3%

RAM Ratings expects Malaysia’s export growth to decelerate to 3% in November 2018, as front-loading activities that had temporarily propped up exports by 17.7% in October subside. The rush to front-load orders in October was driven by greater concerns over the planned increase in US tariffs – from 10% to 25% – on US$200 billion (RM827 billion) of Chinese imports, the ratings agency said in a note today.

RAM is of the view that the export stimuli will remain limited over the next few months – a scenario further supported by a contraction in China’s manufacturing export orders in the last several months.

In line with the weaker external demand, RAM expects that import growth would ease to 1.8% in November.

Overall, the trade surplus is projected to come in at RM11.1 billion in November.

To date, Malaysia has yet to ratify the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) that came into force on Dec 30 with seven members.

That said, RAM’s head of research Kristina Fong opined that Malaysia’s absence is unlikely to have significant implications for its trade performance in the near term, given that it already has free trade agreements (FTA) with five of the seven signatories.

“The two remaining countries, Canada and Mexico, constitute a small share of overall exports at just 0.4% and 1%, respectively, thus limiting potential adverse trade diversion away from Malaysia,” she explained.

Furthermore, she said this trade diversion risk is also mitigated by the fact that the tariff reductions on major goods imported from Malaysia that also overlap with key imports from other CPTPP members, is mostly less than one percentage point.

While the direct impact of Malaysia’s absence from the deal could be muted in the short run, RAM said it could potentially cause the country to lose out over the long term as regional members in the multilateral FTA could be favoured as foreign direct investment destinations.

“Standardised rules of origin and lower regulatory barriers brought about by the CPTPP could entice firms to more readily build up supply chains between member countries. This dynamic could in turn foster the development of new industries and global value chains and build new capacities within this alliance,” it added.