Published on 03 Jan 2019.
RAM Ratings expects Malaysia’s export growth to decelerate to 3.0% in November, as front-loading activities that had temporarily propped up exports by 17.7% in October subside. The rush to front-load orders in October had been driven by greater concerns (until the US-China truce on 1 December) over the planned increase in US tariffs – from 10% to 25% – on USD200 billion of Chinese imports. 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 weaker external demand, import growth is expected to 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 December 30 with seven members. “That said, 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 1.0%, respectively, thus limiting potential adverse trade diversion away from Malaysia,” notes Kristina Fong, RAM’s Head of Research. Furthermore, 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, 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.
Woon Khai Jhek, CFA
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