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Trade growth to remain muted in December 2018 but increased FDI interest could bolster future growth

Published on 29 Jan 2019.

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RAM Ratings expects Malaysia’s export growth to remain lacklustre at 3.1% in December 2018 (November 2018: 1.6%), on the back of weaker demand from key markets as front-loading activities dissipate. The exports of major open economies in the region declined y-o-y in December, signalling slower global demand. Businesses may also hold back orders while awaiting more clarity from the US-China trade dispute. The two economic giants called a 90-day truce on 1 December 2018, to facilitate negotiations. In line with weaker demand for intermediate input for exports, imports are projected to contract by 3.1% in December, giving rise to an overall trade surplus of RM12.0 billion.

Looking ahead, export stimuli for Malaysia will remain limited through the next few months amid uncertain global demand, chiefly arising from the US-China trade talks. This scenario is reinforced by the expectation of muted demand from two of Malaysia’s largest export markets (i.e. China and Singapore), as indicated by the downtrend in their manufacturing export orders. The less upbeat business optimism of export-oriented firms in Malaysia in relation to 1H 2019 - as captured by the RAM Business Confidence Index - suggests headwinds against exports in early 2019.

Despite the prevailing global uncertainty and volatility, the approved value of foreign investments in the manufacturing sector surged to RM33.6 billion in 3Q 2018, bringing the total approved value to RM48.8 billion for the first nine months of 2018 (2017 total: RM21.5 billion). There is also a discernible increase in interest in the chemical and electrical & electronics sectors, which RAM had previously identified as the key sectors in which Malaysia could benefit from the trade divergence arising from the US-China trade war. “It is very encouraging that Malaysia remains relevant and a key node in the global value chain. If these approved investments materialise, Malaysia will have added capacity to fully reap the benefits of these trade-diversion, thereby supporting exports over the longer term,” observes Kristina Fong, head of research at RAM.

 

Analytical contact
Woon Khai Jhek, CFA
(603) 7628 1093
khaijhek@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my

 

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Published by RAM Rating Services Berhad
© Copyright 2019 by RAM Rating Services Berhad



Publication Date Published Category
Economic Insight: December 2018 Foreign Trade 29-Jan-2019 Economic Insight View PDF

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