Published on 02 Nov 2018.
RAM Ratings expects Malaysia’s export growth to temporarily rebound to 12.2% in September, after the mild 0.3% contraction in August. This is amid increased demand from China for Malaysian intermediate inputs as Chinese firms rushed to fulfil front-loaded orders from the US ahead of the latest round of American import tariffs on China on 24 September.
“To date, trade flow volatility has been mainly driven by front-loading activities to protect against a significant escalation in production costs for businesses. With this in mind, export performance is envisaged to wrap up the year in low gear, unless there is another unanticipated round of tariffs down the line,” highlights RAM’s Head of Research, Kristina Fong. This expectation is also supported by the contraction in China’s manufacturing export orders in the last few months. The recent raft of US tariffs marks its broadest and largest to date, affecting a variety of Chinese imports worth USD200 billion. This dwarfs the USD34 billion and USD16 billion of tariffs imposed in the preceding two months.
To counter spiralling costs from the escalating US-China trade war, China has kicked off another round of import tariff cuts (on 1,585 items), to take effect on 1 November 2018. Unlike earlier tariff cuts that had focused on consumer goods, the latest round emphasises industrial products and manufacturing materials. The move will reduce the average tariff for this basket of goods, from 10.5% to 7.8%, with around 75% of the items getting a 0%-4% cut. Malaysia’s exports of these goods to China constitute only 0.4% of our total exports, with no discernible comparative advantage in the production of this basket of goods. As such, Malaysia’s export performance is not expected to be boosted by the latest tariff-liberalisation measures.
In contrast to export, import growth is expected to decelerate to 6.4% in September (August: 11.2%), without a boost from the tax-free window that had underpinned import demand in the last three months. Overall, the trade surplus is projected to come in at RM13.3 billion for September.
Woon Khai Jhek, CFA
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