Malaysia’s foreign trade to contract more slowly in November

Published on 02 Jan 2020.

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RAM Ratings expects Malaysia’s imports and exports to contract a respective 4.7% and 4.4% in November, resulting in a RM8.3 bil trade surplus for the month. This decline is slower than the respective 8.7% and 6.7% declines in October. The continued lacklustre showing is underlined by the persistently sluggish pace of global trade and subdued demand. 

The conclusion of the “phase one” trade deal between the US and China has calmed fears of further deterioration in global trade conditions. While still pending signatures on the dotted line, both sides have suspended the tariffs scheduled for 15 December and reduced the existing tariffs on a selection of goods.

The relaxation of stiff tariffs by the US and China signals a future reduction in the potential trade diversion benefits enjoyed by Malaysia. The reduction of tariffs by the US, presumably on the 1 September 2019 tranche of goods, may encourage the resumption of Chinese purchases that had earlier been diverted to other markets. Such beneficiaries include Malaysia given the its competitiveness in the production of this particular basket of goods (revealed comparative advantage (RCA): 1.19). Similarly, China’s exemption of tariffs on six US items could affect demand for Malaysian-produced goods (RCA: 1.86) as demand is rerouted back to American ones.

As part of the trade deal, China has also committed to purchasing an additional USD200 bil of US farm, energy and manufactured goods through the next two years. “This is perceived as a big commitment given that China currently imports about USD156 billion of American goods annually, which raises the potential of this conciliatory move to alter global trade flows,” highlights Kristina Fong, RAM’s head of research. This may dampen China’s appetite for Malaysian exports and, in turn, the latter’s overall export growth. Manufacturing exports have played a key role in stabilising Malaysia’s exports to China, thus moderating some of the negative impact from a sharp contraction in exports of machinery and transport equipment. 

Analytical contact
Woon Khai Jhek, CFA
(603) 3385 2512

Media contact
Padthma Subbiah
(603) 3385 2577

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Publication Date Published Category
Economic Insight: November 2019 Foreign Trade 02-Jan-2020 Economic Insight View PDF