Public Investment Bank Bhd (PIVB) said this in view of softer overseas demand, coupled with an anticipated decline in worldwide semiconductor sales of -4.1% year-on-year (y-o-y) to US$556.5 billion this year from US$580.1 billion in 2022.
“We believe the country’s trade performance will trend in tandem this year. Monthly semiconductor sales continued to decline further in the last month of 2022 to -14.7% from -9.2% in November, reflecting a significant downward trend since the second half of 2022 (H2 2022).
“This is due to a confluence of factors that increased macroeconomic uncertainty, reduced consumer spending and fluctuating semiconductor demand,” it said in a note.
PIVB also believed the balance of risks to Malaysia’s trade performance remains skewed to the downside.
“This is due to heightening global uncertainties arising from increasing survey-based probabilities of recession in advanced economies, increased inflationary pressures and tightening financial conditions, as well as the escalation of geopolitical tensions.”
China-Taiwan friction
Given that Malaysia’s trade exposure to China and Taiwan accounts for around 22% of its total exports, the friction between these two nations might potentially further exacerbate the issue in the future, it said.
However, it believed that the negative spillovers from the weakening global environment will be partially offset by China’s full reopening in 2023, although the near-term pronounced positive impacts may be limited.
“In the medium-term, trade should prosper if foreign direct investment (FDI) from China keeps pouring into Malaysia’s industrial sector.”
Nonetheless, it said that E&E will continue to boost trade, with electric vehicles (EV) and solar-related products serving as the driving force.
Additionally, Malaysia’s access to nations with whom it had no prior free trade agreements, such as Canada, Chile and Mexico, is anticipated to improve with the ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), it said.
“However, with expectations that some local manufacturers may scale back on production in anticipation of slower demand for manufactured goods, as well as subdued global conditions, we estimate Malaysia’s real Gross Domestic Product (GDP) to moderate to 3.8% this year from a robust growth of 8.7% in 2022.”
Higher imports narrow trade surplus
Meanwhile, AmBank Research shared that Malaysia’s external trade grew 1.9% y-o-y in January to RM207.5 billion with exports rising 1.6% y-o-y to RM112.8 billion and imports growing by 2.3% to RM94.7 billion.
However, it pointed out that a higher growth magnitude in imports translates into a narrowing trade surplus to RM18.2 billion from RM28.1 billion in the prior month.
On a month-on-month (m-o-m) basis, exports declined by 14.4% and imports also fell by 8.6%, wherein the tapering momentum in external trade reflects slower economic activity among Malaysia’s trading partners.
AmBank Research highlighted that Malaysia’s external trade posted a robust performance in 2022, with a total trade of RM2.9 trillion, due to the E&E segment and the global demand towards commodity-based exports especially natural gas and palm oil.
“We expect sales of E&E to be slower this year, reflecting the end of the bullish tech cycle and slower demand from external fronts.
“Malaysia’s manufacturing purchasing managers’ index (PMI) is in the contractionary territory since September 2022 and has been on a downward trend since then, reflecting pessimism from the external front.
“The latest PMI number in January was at the lowest level since the Covid-19 pandemic,” it noted.
Overall, the research house expected export growth of 5%-10% this year as compared to 27.8% in 2022.
“We maintain our GDP projection of 4.5% in 2023 as downside risks brought by a slowdown in global trade is expected to be mitigated by relatively robust domestic demand.”