Published on 03 Apr 2019.
RAM Ratings expects trade growth to moderate in February, with export expansion decelerating to 1.4% (January: 3.1%) while imports contract 3.3% (January: +1.0%). This would result in an overall trade surplus of RM12.1 bil for the month, largely on the back of more subdued industrial activity during the lunar new year festivities and compounded by an already short working month. Slower industrial activity in key regional markets is also expected to continue impinging on trade growth.
Looking ahead, trade momentum is likely to moderate amid greater uncertainty and softening global demand. This will likely hit Malaysia’s electrical and electronics (E&E) sector the hardest given that output is heavily dependent on foreign consumption. Some 88.8% of total value-added (VA) generated by the sector is exported, making it especially susceptible to weak global demand. While the E&E sector is the most export-oriented, the highest amount of value-added export (VAE) is attributable to oil and gas (O&G) mining activities. Although 57.5% of this sub-sector’s generated VA is exported, it constitutes 15.6% of total VAE from all sectors. In comparison, E&E constitutes 14.2% of total VAE. This indicates that a demand shock for the O&G sector will deal the biggest blow to overall exports.
The exposure of Malaysia’s overall industrial output is also notable as 43.4% of the nation’s generated VA is to meet foreign consumption. Moreover, a significant proportion of our total VAE goes to the world’s three largest economies, i.e. China (20.1%), the US (12.8%) and Japan (8.8%); this is calculated on the basis of final consumption destination. The number differs from those calculated on the basis of direct export destination, as VAE also includes exports that have passed through some intermediate processing en route to the final demand destination. “As such, Malaysia’s exports and, in turn, GDP momentum would be particularly vulnerable if there were to be a synchronised global downturn,” notes RAM’s head of research, Kristina Fong.
Woon Khai Jhek, CFA
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