Malaysia’s exports to moderate in May as US-China trade tensions escalate
KUALA LUMPUR: Malaysia’s export growth is expected to moderate to 5.5 per cent in May 2018, after having rebounded to 14 per cent in the preceding month, RAM Ratings observes.
In a press statement, it pointed out that the moderation can be partially attributable to a high-base effect from May 2017, when export growth surged 32.4 per cent – the highest level since March 2010.
“The continued decline in imports of intermediate goods also suggests an expectation of a corresponding moderation in external demand growth going ahead.
“In line with the expected deceleration in exports, import growth is envisaged to contract 2.5 per cent in May 2018. Furthermore, some risk aversion in the lead-up to the 14th General Election may also have caused some holdback in investments, thereby contributing to the slower pace. Overall, the trade surplus is projected to come in at RM11.8 billion for the month,” it said.
It noted that the direct impact arising from US’s protectionist policies and tarif fs on Malaysia’s exports has been limited to date, as exports of affected goods to the US (blanket tariffs on solar panels, washing machines, and steel and aluminium) only constituted 0.8 per cent of our total exports in 2017.
“However, the second-round effects from the escalating trade tensions between the US and China, which bears the brunt of most of the American tariffs, will pose a bigger concern to the Malaysian economy. This ripple effect will be more strongly felt through the global value chain (GVC) and also in global trade and economic growth,” it added.
“Notably, the US tariffs announced have a more farreaching impact beyond China and have significant spillover effects to the GVC given the intermediate nature of the goods taxed. China’s set of retaliatory tariffs, on the other hand, seemingly target the US specifically”, explained RAM’s head of Research, Kristina Fong.
That said, RAM Ratings noted that the large trade gains could be derived as US substitutes its demand for imports away from China to other established tech markets, in addition to inward investment gains from American and Chinese firms seeking to bypass these trade tariffs by relocating its operations.
It added, “However, the latter will take time to materialise as firms will require greater certainty in terms of how long and how significant this trade war will turn out to be.”
In the near term, it believed that significant downside risks might arise from the widespread uncertainty and heftier production costs, primarily for the US.
“This could in turn affect the current positive global economic momentum through higher unemployment and lower investments.
“Moreover, greaterthan-expected inflationary pressure may also spur fasterthan-anticipated monetary tightening by the US Federal Reserve, which may further hurt investment and global restocking demand,” it added.
For Malaysia as a small open economy, RAM Ratings opined that weak external demand is a clear downside risk to growth momentum and this would require very close monitoring.