Economists see exports strengthening in coming months despite February's contraction

TheEdge Mon, Mar 18, 2024 10:13pm - 3 months View Original

KUALA LUMPUR (March 18): Economists anticipate export momentum will continue to strengthen in the coming months, despite weaker-than-expected February data, buoyed by higher exports of electrical and electronic (E&E) products and commodities.

Malaysia's exports contracted by 0.8% year-on-year (y-o-y) to RM111.33 billion in February, marking a reversal from the robust rebound of 8.7% y-o-y seen in January. Still, exports for the first two months of 2024 (January to February), grew 3.9% y-o-y to RM233.74 billion.

"The decline in Feb exports was primarily due to falling shipments of manufactured (February: down 2.4%, January: up 9.3%) and agriculture (February: down 4.8%, January: up 17.3%) goods, which fully offset the strong turnaround in exports of mining products (February: up 16.8%, January: down 4.9%). Demand from top export destinations such as Singapore, China including Hong Kong, and EU remained sluggish, counterweighing the effects of increased shipments to the US, Japan, Taiwan, India and Indonesia," UOB Global Economics & Markets Research said in a report on Monday.

Nevertheless, the export performance for the first two months of the year has reinforced its view that a trade recovery is underway, albeit a "bumpy" one due to seasonal effects of the festive period and potential disruptions and delays stemming from the Red Sea crisis.

And continued strength in import demand, particularly for the import of intermediate goods, presages a positive export trend in coming months, said the research firm.

UOB maintained its modest growth projection of 3.5% for 2024, primarily driven by the anticipated recovery in the E&E sector. Apart from that, the research firm said rising exports to G3 economies — mainly lifted by shipments to the US and Japan — robust commodity exports supported by higher volumes, and China’s latest trade and industrial output, are expected to further bolster export growth.

China showed a 7.1% y-o-y increase in exports and 7% y-o-y rise in industrial output from January to February.

RHB Investment Bank, meanwhile, maintained its optimistic view of trade outlook, as it expects export to continue to strengthen in the first half of the year, underpinned by brighter global and regional economic outlook, the strengthening economic dynamics of China and the re-acceleration in the global technology cycle.

“We maintain our above-consensus forecast for the US and China economies to expand by 2.2% and 5.0% in 2024, respectively. Market consensus is shifting towards our view for the US and China to grow at 2.1% (from 1.5%) and 4.6% (from 4.4%), respectively. GDP leading indices for the rest of ASEAN also points to a broadly higher growth momentum.

“We have noticed signs of picking up in Asean industrial and trade momentum. We expect the export-oriented sectors ie electrical and electronic (E&E) and commodity-based products to benefit from the strengthening of the global and regional economy,” the research house said.

While Malaysia stands to benefit from the pick-up in global demand, spurred by the positive turnaround in export performance witnessed in regional countries like South Korea and Taiwan, MIDF Research cautioned against several downside risks that could potentially dampen the trade outlook.

These include the escalation of geopolitical and trade tensions, a significant economic slowdown in key trading partners and prolonged weakness in global production activities. Despite these concerns, MIDF kept its full-year export forecast at 5.2%.

The research firm is also anticipating an uptick in imports, projecting a rebound of 4.4%, driven by expanding domestic demand and increased activities in the manufacturing sector.

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