Published on 03 Sep 2019.
RAM Ratings expects Malaysia’s exports and imports to reduce by 1.8% and 1.1%, respectively, in July, resulting in a narrower overall trade surplus of RM7.7 bil for the month. The continued contraction estimated for July is consistent with subdued global demand amid heightened uncertainties. This is not entirely surprising, given ongoing tensions between Japan and South Korea and escalating US-China tit-for-tat tariffs.
The rapid escalation of both the rates and scope of tariffs by both US and China in the past couple of months, covering almost all bilateral trade between the two countries, will likely aggravate the already sluggish global trade momentum. Tariffs imposed by the US will affect 96.9% of total imports from China whilst China's tariffs will cover 68.1% of total US imports.
While slow global demand had significantly dampened the regional export growth momentum, Malaysia is seen as among the least affected, having experienced a marginal decline of 0.2% in 1H 2019 vis-a-vis the sharp contraction charted by other economies in the region. Most notably, Indonesia and South Korea each saw exports drop 8.6% in 1H 2019, followed by Hong Kong and Taiwan which registered a downtick 3.6% and 3.4%, respectively. A key driver of the marked deceleration in these economies had been a significant reduction in exports to China and Hong Kong (a proxy to the Chinese market) in 1H 2019. The impact on Malaysia’s exports, however, has been comparatively small (lowering overall export growth by only 0.7 percentage points). “This could be attributable to sustained demand for Malaysia’s chemical and mineral fuel exports from China, a supporting factor not enjoyed by other regional economies,” explains Kristina Fong, RAM’s Head of Research.
Woon Khai Jhek, CFA
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