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Downside risks remain for Malaysia despite export gains in May

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KUALA LUMPUR, July 5 2019 : Despite the export growth momentum registered by Malaysia in May, downside risks still remain says, Affin Hwang Capital.

In a research note today, it said moving forward, Malaysia exports would be partly impacted by external factors, due to uncertainties in the bilateral trade between the US and China.

“We maintain our forecasts on gross exports and imports at two per cent and 3.4 per cent respectively in 2019 with a trade surplus of RM110.0 billion, slightly lower than the RM120.3 billion registered in 2018.

“Downside risks remain, if the trade talks fail again,” it added.

While both the US and China have declared a truce and agreed to resume negotiations, Affin Hwang Capital said the earlier tariffs imposed, had dampened regional export growth due to some global supply chain disruptions.

Malaysia’s manufacturing PMI slipped to 47.8 in June from 48.8 in May, and according to the Markit report, the manufacturing sector faced further challenges as demand conditions weakened, and there were fewer new orders from international clients which also weighed on production volumes.

Global sales of semiconductors declined by 14.6 per cent y-o-y in May (-13.7 per cent in April), which will also weigh on Malaysia’s exports of semiconductor products, it said.

Malaysia’s export growth in May, expanded a further 2.5 per cent year-on -year (y-o-y), faster-than-expected, amid a pick-up in non-electrical & electronics (E&E) and commodities shipments.

Other research houses also expressed similar sentiment on Malaysia’s export growth momentum going forward.

RHB Bank Bhd’s economist, Vincent Loo Yeong Hong said overall, export momentum had shown a slight pick-up in April to May after a weak first quarter 2019 (1Q19), thanks to a rebound in non-E&E exports, as shipments of machinery & equipment, chemicals, wood and metal products picked up.

Likewise, he said commodity exports declined at a slower pace of 1.3 per cent y-o-y, after falling 9.5 per cent in April, amid a sharp rebound in palm oil shipments and slower decline in crude oil exports, but in contrast, shipment of liquefied natural gas (LNG) slipped into a decline.

“Despite worries over the trade tensions and a downturn in the semiconductor cycle, it had yet to fully impact the E&E sector thus far. The escalation of trade tariffs by the US on China’s imports in May warrants further attention in the coming months,” he added.

In a research note, Public Investment Bank said Malaysia was among the very few countries in the region, alongside Vietnam and China, to have managed to hold up export momentum.

It said palm oil and palm oil-based and natural rubber saw a strong comeback in May with the latter having managed to hold on to a positive back-to-back growth momentum since April.

Crude palm oil made a significant turnaround for the month, its first positive growth in more than a year, it added.

AmBank Group Research said the trade trajectory for the second half of this year was a concern.

In May, exports grew faster at 2.5 per cent y-o-y, from 1.1 per cent in April and imports slowed down to 1.4 per cent compared to 4.4 per cent in April.

Meanwhile, the trade surplus narrowed to RM9.1 bilion in May from RM10.9 billion.

According to AmBank Group Research, the latest trade number signals external demand remaining weak, as year-to-date exports grew marginally by 0.2 per cent y-o-y, while imports remained in the negative region at -0.6 per cent y-o-y.

“At this juncture, we remain cautious on the external trade due to the downshift in the global manufacturing sector as reflected in June’s Global Manufacturing Purchasing Managers’ Index (PMI), which eased to 49.4 points from 49.8 points in May.

“Besides, the survey also highlighted operating conditions deteriorated again in the intermediate and investment goods industries. Having said that, we believe export performance to be tepid for the rest of 2019 and projecting a two per cent y-o-y growth in 2019,” it said. – Bernama

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