Positive signals | The Star

PETALING JAYA: Economists are keeping their optimism on several factors in relation to Malaysia’s external trade data for May, despite the fact that the trade surplus has continued to shrink.

The Statistics Department unveiled that total trade for last month has experienced a 10.3% year-on-year (y-o-y) increase to RM246.3bil, driven primarily by the 13.8% growth in imports to RM118.1bil, while exports rose at a slower rate of 7.3% to RM128.2bil.

Consequently, the country’s trade surplus fell by 35.4% y-o-y to RM10.1bil, although May turned out to be the 49th consecutive month that Malaysia has recorded a trade surplus since the corresponding month in 2020.

Being a country with abundant natural resources, it would be logical to assume that Malaysia would benefit more by producing more goods for exports. However, the real picture may not be as straightforward.

Chief executive at the Centre for Market Education Dr Carmelo Ferlito pointed out that a trade surplus may not necessarily boost the government’s coffers, although a positive signal for Malaysia comes from the growth of 22% in the export of agriculture products.

“In general, international trade is growing and also the good share intra-Asean trade is a good signal.

“Hopefully, this will also be reflected in the declining number of anti-trade regulations, which had increased worldwide during the lockdowns,” he told StarBiz, before adding that Malaysia can extend its trade surplus if it pushes further on rebuilding its manufacturing base, in particular to produce value-added products.

Delving deeper into the numbers, chief statistician Datuk Seri Dr Mohd Uzir Mahidin observed that the rise in exports was in line with the increase in the sale of several product groups, including electrical and electronic (E&E) products, palm oil and palm-based agriculture products, as well as iron and steel products.

On the other hand, the growth in imports was attributed to E&E products, metal manufactured products, agriculture products, processed food and textiles, among other goods.

Executive director at the Socio-Economic Research Centre and veteran economist Lee Heng Guie believes Malaysia’s trade surplus will remain at a healthy level, despite its narrowing in May, although he acknowledged that it could be uneven or even shrink further in the second half of 2024 (2H24).

“While exports are anticipated to continue expanding, imports growth should remain high, resulting in smaller trade surpluses for some months ahead. Strong imports growth in recent months reflect the expansion of exports, investment and domestic spending,” he said.

Holding on to his gross domestic product (GDP) growth estimate of 4.5% for Malaysia this year, Lee said the economy will be supported by continued, albeit slower, domestic demand, and exports recovery.

Additionally, he said private investment growth, having had a good start to the year with a 9.2% y-o-y expansion in the first quarter, will remain as one of the main drivers of the domestic economy in 2024 and beyond.

A geographical look at the country’s trade revealed that the growth in exports has been led by an increase of goods flowing out to Singapore, followed by the United States, Taiwan and India.

Concurrently, Mohd Uzir reported that the increase in imports is attributable to goods being purchased from Malaysia’s largest trading partner China, together with the United States, the United Arab Emirates and Taiwan.

Meanwhile, total trade, exports and imports for the period of January to May 2024 has again surpassed the RM1 trillion mark, rising 8.7% y-o-y from RM1.1 trillion to RM1.2 trillion, compared to the first five months of 2023.

However, with the trade surplus declining, leading economist Prof Geoffrey Williams opined that this means the contribution of net trade to GDP is falling and as such, overall GDP growth may be held back in 2024.

“This is part of a trend since August last year. The trade surplus has been falling year-on-year since then.

“The global economy this year is expected to grow around 3.1% which is the same as last year. Next year it is expected to grow around 3.2% so there is no uptick in growth now and very little foreseen for next year,” he told StarBiz.

Mirroring Lee’s forecast, he does not see any reasons in the near-term to expect Malaysia’s trade balance to improve in 2H24 unless exports improve.

Prof Williams also believes the growth in Malaysia’s export market is outside of the control of local policymakers, so exports would only improve if new trade deals, such as the BRICS (the intergovernmental organisation comprising Brazil, Russia, India, China, South Africa and other countries) membership can be expedited.

“Excise duties and taxes on Malaysian exporters can be cut to help exporters but in the end it is overseas demand that drives exports,” he said.

He is keeping his GDP growth forecast for 2024 at 3.5% this year, adding that Akaun Fleksibel withdrawals from the Employees’ Provident Fund may add a push of RM25bil, which will help domestic consumption.

HSBC Asean economist Yun Liu, seeing a bigger picture, remarked that while imports had grown faster than exports in May, it partly signals the precursor of an upcoming stronger trade cycle, especially since Malaysia’s manufacturing is import-intensive.

In particular, she was encouraged by the country’s electronics recovery, since the country has been lagging behind regional peers.

“Looking at the electronics exports momentum, measured on a three-month-moving-average basis, it was the first time it turned positive in almost a year’s time,” she noted.

Furthermore, she said Malaysia saw decent GDP growth in the first quarter of 2024 even in the absence of a strong trade recovery, and is therefore expecting a more meaningful boost from trade to materialise likely in 2H24 to lift growth.

“We expect GDP growth to accelerate to 4.5% in 2024,” said Liu.